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Passage of Sovereign Wealth Fund Bill

24 May 2011

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Having consistently advocated for it, we welcome the passage of the Nigerian Sovereign Investment Authority (NSIA) Bill, popularly called the Sovereign Wealth Fund (SWF) Bill by the National Assembly. But we note that this is only the first of many crucial steps necessary for achieving the desired objectives of the bill.

Last week, both chambers of the National Assembly passed the bill to set out an era of a more transparent way to manage the country’s oil earnings. President Goodluck Jonathan is expected to sign the bill into law.
The NSIA is to be funded and owned by the federal, states, Federal Capital Territory (FCT) and the local governments with an initial take-off grant of $ 1 billion for the SWF.

The fund is to be managed by a Governing Council, chaired by the President  and with all state governors, Attorney General of the Federation, Minister of Finance, Central Bank of Nigeria (CBN) Governor, Chief Economic Adviser to the President and four reputable professionals in the financial sector as members.

Understandably, the SWF replaces the Excess Crude Account (ECA) established by the Olusegun Obasanjo administration under controversial circumstances – without the approval of the National Assembly. But the Account’s usefulness has  provided justification for the SWF by offering relief from the shocks of the unstable oil market, especially during the heat of the global economic meltdown. Consequently, the Account, which was worth over $20 billion in 2007, dwindled to a low $3 billion in three years.
Coming after five oil booms and the threatened depletion of the Excess Crude Account, the NSIA bill could be said to be late in coming, but it is better late than never.

Nigeria is joining the league of SWF owners with assets totalling between US$2-3 trillion. SWF assets are projected to surpass the stock of global foreign exchange reserves in the not so distant future and to top $7-11 trillion by 2013.

Reacting to the passage of the bill, Finance Minister, Dr. Olusegun Aganga said: "With the NSIA, Nigeria will be able to reduce its longer term dependency on oil by investing its oil revenues on an on-going basis in infrastructure and other economic development projects that will help transform Nigeria into a vibrant and diversified economy…Our oil wealth is a tremendous blessing. But while high oil prices can bring much needed revenue to Nigeria to finance growth and development, it also brings many risks, especially due to its inherent volatility and the impact that boom and bust revenue cycles can have on inflation, fiscal planning, and budgetary prudence. The NSIA will help Nigeria mitigate these risks in the same way that sovereign wealth funds are now a fundamental component of macro-economic wealth management by natural-resource-rich countries around the world”.

We commend Aganga for his doggedness in seeing the bill passed and also his predecessors for their position on the need to save for the rainy day. Despite the delay, we also believe that the National Assembly deserves commendation for passing the bill at last and for its call for transparency in the operation of the Fund.

We note with satisfaction the comprehensive nature of the bill in managing the country’s oil earning. Aganga had explained at another forum that the SWF will have three boxes: savings box for future generation, which cannot be touched but would go into equities and bonds; stabilisation box, which is equivalent to what the ECA currently does; and the box for infrastructure fund, which would serve as catalyst for local and international investors.

We believe that the boxes address concerns of stakeholders, including those who do not find the need to put excess oil revenue away at a time of the country’s urgent developmental needs.

The overall benefits of the SWF are not in doubt. Our concern, is the history of the failure of laudable initiatives in the country due to politicisation and corruption. We therefore demand utmost transparency in the operation of the fund at all times. Other countries have made remarkable achievements with their SWF; Nigeria should not be an exception.

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