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All quiet at Sovereign Wealth Fund as excess crude account depletes

Filed under: Africa |

Despite repeated assurances, the Sovereign Wealth Fund (SWF), the nation’s investment fund, is yet to take off. There is palpable inactivity at the Fund which was slated to commence operations on or before the end of the first quarter of 2013, almost two years after its inauguration.

The country in 2011 passed the Nigeria Sovereign Investment Authority Act (NSIA) setting up its own SWF with $1 billion as seed capital.

The Ministry of Finance said in December 2012, that the Nigeria SWF was making progress towards becoming fully operational by March 2013, and that the Strategy Document which would guide its operations was ready, while its investment policy guidelines and the processes for the three fund mandate were almost finalised.

Consequently, the Federal Government in February, appointed leading financial services firm, JP Morgan, as the custodian of the $1 billion Fund, preparatory to its formal take-off in March.

It is expected that another withdrawal of $1 billion from the ECA will be done this month for onward distribution to all the tiers of government, for project execution according to Yerima Ngama, the minister of state for finance. This will reduce the balance on the account to $6.82 billion.

Another cause of worry is the continued delay in the appointment of a chief investment officer for the Fund. The appointment of the CIO is expected to kick-start activities at the Fund. However, Uche Orji, former Goldman Sachs Group Inc and UBS AG banker, who was appointed managing director of the Fund last September, told BusinessDay recently that everything was on course.

“Things are proceeding to plan, CIO interviews were concluded last month and we are awaiting reference checks,” Orji said.

But some analysts said last week, that the delay in the appointment,

which they attribute to cumbersome procedures and the need to reflect the federal character principle, may be responsible for the late take-off of the SWF.

Consequently, some are of the opinion that the development amounts to denying the country of the benefits of early investments in world class companies, with the attendant multiplier effects on the local companies, through establishments of subsidiaries in the local economy.

Also, they argue that the continued absence of a legal framework- such as the SWF- to save excess oil earnings risks exposing the economy to fiscal distortions.

This has often encouraged arbitrary recourse to ECA, which currently keeps the excess earnings over budget benchmark and for which constitutional existence is being questioned.

Nigeria in 2011 passed the Nigeria Sovereign Investment Authority Act (NSIA) setting up its own SWF with $1 billion as seed capital.

The ministry of finance said in December 2012, that the Nigeria SWF was making progress towards becoming fully operational by March 2013, and that the Strategy Document which would guide its operations was ready, while its investment policy guidelines and the processes for the three fund mandate were almost finalised.

The Federal Government in February, appointed leading financial services firm, JP Morgan, as the custodian of the $1 billion Fund, preparatory to its formal take-off in March.

JP Morgan’s role as a custodian, would be to hold and manage the SWF’s securities or its other assets on Nigeria’s behalf.

President Goodluck Jonathan in January approved the transfer of $1 billion from oil-revenue savings in the ECA to be shared by the country’s 36 states and Federal Government.

The money was purported to be used to implement “people-oriented projects.”

The figure compares with $9 billion that the Finance Ministry said it had accumulated in it by December 2012.

“Market players are concerned about this development, given the absence of a credible and codified framework to accumulate fiscal savings on a sustainable basis,” Samir Gadio, an emerging markets strategist at Standard Bank London said, in a response to questions.

The progress of Nigeria’s SWF is being hamstrung by political wrangling between the executive and the powerful 36 state governors who have shown opposition to it in the past.

Under the Nigeria Sovereign Investment Authority Act (NSIA), the SWF is empowered to invest anywhere within or outside Nigeria, in a range of assets including international equity, private equity, real estate, debt and “all other asset classes generally utilised by best-in-class investment fund managers”.

The Fund 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.

Nigeria, which gets 90 percent of its exports and up to 70 percent of Federal Government revenue from the sale of crude oil, is among the last members of the Organisation of Petroleum Exporting Countries (OPEC) to set up a wealth fund.

 

JOHN OMACHONU &

PATRICK ATUANYA

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