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SWF delays investment on account of volatile global markets

Filed under: Markets |

Nigeria’s new $1bn sovereign wealth fund is delaying making its initial investments due to the volatility in global markets.

In a first for Nigeria, the fund was launched in October to safeguard oil revenues for future generations and provide a buffer against external shocks. Though modest in global terms, it is the third biggest sovereign wealth fund in sub-Saharan Africa, after the $6.9bn Botswana and $5bn Angola funds.

The Nigeria Sovereign Investment Authority, which is in charge of the new fund, announced in May it would start investing this month. But Uche Orji, the managing director, said on Tuesday he was holding back in case of further corrections in the global share and bond markets.

“We have to be very careful with the deployment of cash because of this volatility. If the market feels like it does not offer value, we may not invest [for some time],” Orji said in an interview in Lagos.

The board of the NSIA approved the investment policies of the fund in May. It has three components. The future generations and infrastructure funds will each receive 32.5 per cent, or $325m, to invest. The stability fund will get 20 per cent, while 15 per cent is unallocated.

Orji said he was close to signing agreements with investment banks to manage the future generations fund. While he did not give names, the NSIA said last month that it had met various “potential partners”, including Goldman Sachs, UBS and JPMorgan.

The future generations fund will target above-inflation growth through investments in global equities, bonds, private equity, real estate and commodities, excluding oil.

The stability fund will hold treasury bills and investment grade bonds. The infrastructure fund is limited to Nigeria, with money going into projects to improve transportation, energy, power, water resources and agriculture.

On Tuesday, the NSIA signed a memorandum of understanding with the Lagos-based Africa Finance Corporation to work together on infrastructure transactions. A similar agreement was signed with GE last week.

Oil and gas account for close to 80 per cent of government revenues in Nigeria, which should enable savings when petroleum prices are high.

But despite decades of crude

production, there have never been significant savings. The existing savings account, known as the Excess Crude Account, grew to more than $20bn in 2007 but was frequently raided by the government and dropped to $4bn in 2011.

By the end of 2012, it had risen to $9bn but is now down to $6bn, mainly because oil production has fallen below 2m barrels a day, against 2.5m b/d projected in the budget.

Ngozi Okonjo-Iweala, finance minister, said last year that she wanted to grow the sovereign wealth fund by $1bn a year, but opposition from powerful state governors, who receive a share of national revenues, may prevent that.

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