29 August 2011

Nigeria: Let the Sovereign Wealth Fund Be


Within a period of less than a year that he was Finance Minister, Mr Olusegun Aganga was able to conceive the idea of the Sovereign Wealth Fund (SWF), mobilise the support of the relevant stakeholders, initiate an executive bill which was forwarded the National Assembly, get it passed in record time and have the president assent to it.

It is a remarkable feat that demonstrates what commitment to noble ideals can achieve with the right people driving the process.

Unfortunately, while the bill establishing the National Sovereign Investment Authority (NSIA) was signed into law by President Goodluck Jonathan three months ago with the setting aside of $1billion as seed capital for investment in projects, nothing has been done to put the idea into operation even when there is an urgent need to do so given the irony of dwindling reserves amid skyrocketing oil prices. Yet, according to the Act creating the NSIA, the Federal Government will set aside excess oil revenue and allocate it to three separate ring-fenced funds -the Nigeria Infrastructure Fund, the Future Generations Fund and the Stabilisation Fund.

The delay in implementing the NSIA Act as well as the management of the country's revenue, have sparked off a debate on the current administration's commitment to fiscal prudence. It has also emboldened the governors to practically repudiate their earlier endorsement of the SWF idea by now asking that all monies accruing to the federation be shared without leaving anything for tomorrow. As a newspaper, we do not think the position of the governors is productive.

There are many reasons why the idea of a SWF lends itself for our support. One, it is an instrument for monetary and fiscal policies that is particularly useful for a nation like ours that is dependent on a wasting asset. Two, countries like China, Norway and Singapore have shown the benefits of investing in the future and this is a model to which we should aspire. Besides, we note that Nigerian leaders have, over the years, been accused of squandering the nation's resources and leaving the poor majority and generations unborn to bear the brunt. The NSIA Act therefore gave renewed hope that our public officials, at all levels, were ready to walk the talk of sustainable growth.

It is also pertinent to enumerate the features that make the NSIA unique and worthy of execution, particularly at this point in Nigeria's economic history. Until now, Nigeria, Ecuador and Iraq were the only OPEC member countries without a Sovereign Wealth Fund. With the creation of NSIA, Nigeria is expected to join 50 other natural resource-rich countries, which together manage over $3trillion in sovereign assets, in a success story borne out of a produc- tive resource management strategy.

In fact, in realisation of the fact that Sovereign Wealth Funds now form a fundamental component of strategic management of fiscal surpluses globally, Ghana and Uganda are in the process of setting theirs up even when their oil production has not taken off fully.

Perhaps the most crucial reason why we support the NSIA is because it helps resolve the lacuna of the Excess Crude Account to which all extra-budgetary earnings were hitherto being kept. TheExcess Crude Account, established in 2003 to act as a buffer against unexpected economic shocks caused by the boom and bust cycles of oil revenue, represents the savings between budgeted benchmark price for crude oil and the actual market price. This despite the criticism by state governors who felt that creating such an account was not only illegal because it was not backed by the constitution, but would also reduce the resources available for them to execute projects in their respective states.

Now that the Minister of Finance, Dr. Ngozi Okonjo-Iweala has resumed work, we urge that government should immediately begin to implement provisions of the NSIA so as to reduce Nigeria's susceptibility to the consequences of volatile oil prices such as high inflation, weak export base, surge in imports and the accompanying unsustainable balance of payment position.

With the Ministry of Trade and Investment created to drive and coordinate investment efforts, the government must move fast to set the NSIA in motion. Of course, integrity, discipline and transparency must be the guiding principles.

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