Minister of Finance, Ngozi Okonjo Iweala
The take-off of the Sovereign Wealth has provided a veritable opportunity for the country not only to save for the raining day, but essentially to meet the rising challenges to nationhood, Festus Akanbi examines the groundwork for the all important policy as Nigeria marks its 52nd independence anniversary
The inauguration of the Board and Management of Nigeria’s Sovereign Wealth Fund by the Federal Government, last month, has, no doubt, ushered in a new dawn towards a deliberate, planned and sustainable management of Nigeria’s earnings from crude oil. Although this is coming 52 years after the country’s independence, analysts, believe that it couldn’t have come at a better time given the rising level of uncertainty in the global economy occasioned by the global economic meltdown and the volatility of crude oil prices at the international market.
Indeed, the journey towards the establishment of the country’s SWF was not a smooth one, going by media reports on the Fund ever since it was initiated by the former Minister of Finance, and now Minister of Trade and Investment, Mr. Olusegun Aganga. There were various issues, ranging from complexities of the Nigerian to the interplay of various political and economic interests which have always shaped, and ultimately determined the implementation of every policy initiative in Nigeria.
The first sovereign wealth fund in the world was established in Kuwait in 1953, as a means of helping to stabilise the economy from fluctuating oil prices. In 1956, the Gilbert Islands (now Kiribati), established the revenue equalisation reserve fund to manage profits from phosphate mining. However, after Kuwait and Kiribati, the next major SWFs were created in the 1970s, in the wake of the oil stock. But the most recent wave of SWFs’ establishment started in the 1990s with the Norwegian government’s pension fund-global in 1990, after which the trend has continued till today. And within the last five years, some countries such as China, Iran, Russia, Qatar, and United Arab Emirates, have established their own SWFs.
Nigeria’s journey towards the establishment of its SWF began in 2011, when the former Minister of Finance and current Minister of Trade and Investment, Mr. Olusegun Aganga, initiated the idea that has since become almost synonymous with his name. Convinced that the country urgently needed a “special buffer” to jump-start its economic regeneration, Aganga initiated a research, making use of international consultants, into the workability of a Sovereign Wealth Fund in the Nigerian environment. Under Aganga’s watch, the framework for the establishment of the SWF was designed and major hurdles, including the initial protests by state governors, cleared, until it was signed into law via the Nigerian Sovereign Investment Authority Bill on Thursday, May 26, 2011, by President Goodluck Jonathan.
Aganga’s concept of the Nigerian SWF, which was based on the Santiago Principle, comprised three investment baskets, namely: the Nigeria Infrastructure Fund; the Future Generations Fund and the Stabilisation Fund.
Bridging Infrastructural Gap
Specifically, Aganga, at the time noted that, “The Infrastructure Fund is expected to be used in bridging the nation’s infrastructure gap by investing in the development of critical infrastructure across the country. Notably, 10 per cent of this fund will be devoted to agriculture and regional government-sponsored development projects that will promote economic development in under-served sectors or regions in Nigeria.
“On the other hand, the Future Generations Fund will be used to build an inter-generational savings base by investing in longer term assets that generate returns to accumulate wealth for future generations of Nigerians, the Stabilisation Fund will be used to protect the country’s budget by providing a stable, last-resort source of finance during periods of fiscal deficit. However, the Stabilisation Fund will ensure the smooth functioning of government and delivery of key services during periods where revenues from petroleum sales are less than the level anticipated and approved by the National Assembly.
He added, “With the establishment of the SWF, Nigeria will join other OPEC states and more than 50 other natural-resource-rich countries, which together manage over $3trillion in sovereign assets, in having a national savings plan for managing natural resource wealth. Up until now, Nigeria was one of the few OPEC members without a Sovereign Wealth Fund. In fact, Ghana and Uganda have moved forward with establishing their own Sovereign Wealth Funds, even when their oil production was not yet fully on stream. Algeria established its Sovereign Wealth Fund in 2000, to save the difference between the actual and projected revenue generated from petroleum resources. In 2011, the Algerian fund was estimated to worth $57billion. Globally, Sovereign Wealth Funds now form a fundamental component of strategic management of fiscal surpluses.”
He said, “If you recall that last year, we actually took our time to make sure that we did everything that we needed to do. I actually made representations to the governors at the National Economic Council at least four times. Each time we discussed it, we looked at areas where we needed to be flexible; we looked at their concerns and we structured it in a way to accommodate all the concerns. They had input into it.
“For example, the idea was to have three sub-structures: a Future Generation Fund for our children, grandchildren and great grandchildren; Stabilisation Fund and Infrastructure Fund, which will help develop our infrastructure in the country; serve as a catalyst for bringing in other investors to invest in infrastructure, including Sovereign Wealth Fund globally.
Aganga added in a recent interview that “the issue of whether it was constitutional or not was raised. We all agreed at NEC that we should invite the Attorneys-General of the 36 states for consultations. I invited the AGs to Abuja with some lawyers. We went through the rationale. We went through the section of the constitution we were relying on and the consensus was to go ahead. We consulted widely; I did not just do this. And when we decided to set up the fund and set aside $1 billion, we went round every Governor for a yes or no answer, and the consensus was ‘set up the fund, set aside $1 billion.’
“We would not have set aside $1 billion if it was not decided. And at the end of that meeting, we would always have a press conference. The governors announced to Nigerians that we have now approved the SWF and we have asked the Finance Minister to set aside $1 billion and immediately that $1 billion was set aside. And I took it to the National Assembly and it was the fastest economic bill to be passed within a five-month period. I did everything to make sure it was out and it was signed into law by the President on the 27th of May at 4.23pm.”
Experts, however, have said that Aganga deserved special commendation for initiating the idea of SWF for the country and then following it through by pushing for a legislative framework to back its establishment, describing the framework/concept as very good for the country.
In an interview with our correspondent, the National President, Manufacturers Association of Nigeria, Chief Kola Jamodu, said, “The idea of establishing the Sovereign Wealth Fund for Nigeria is a good initiative and Aganga deserves commendation for spearheading that good initiative. As a country, we should not be spending every revenue we earn from crude oil without setting something aside for infrastructural development, economic stablisation and future generation as provided by the SWF.”
Similarly, the Registrar, Institute of Finance and Control, Nigeria, Mr.Eohoi Godwin, said the former finance minister must be commended for pulling the country, in spite of stiff opposition, from the era of squandering its exhaustible crude oil resources to a new dawn of saving for the future generation.
“We, at the Institute of Finance and Control are commending Aganga for initiating the establishment of the Sovereign Wealth Fund when he was the Minister of Finance. Every policy he has ever introduced as a minister is usually well-researched and has the improvement of the lives of ordinary Nigerians as its cardinal objective,” he said.
Reports had quoted the Chairman, Northern Governor’s Forum and Niger State Governor, Dr. Aliyu Babangida Muazu, to have said during the National Council on Trade and Investment in Minna, that the credit for the establishment of the SWF should be given to Aganga for his vision, courage and uncommon determination which resulted in the establishment of the SWF.
He said, “Aganga is the founder and father of Sovereign Wealth Fund in Nigeria. He is one of those few patriotic and visionary Nigerians who is very passionate about the economic transformation of this country. His appointment by President Jonathan, first as the Minister of Finance, and now as Minister of Trade and investment, has resulted in the introduction of policies and reforms that have helped to put Nigeria on a sound footing to attract local and Foreign Direct Investment across all sectors of the economy. Had it been that we established the Sovereign Wealth 50 years ago, we would have gone very far from where we are today”
The Minister of Finance, Dr. Ngozi Okonjo-Iweala, last month, announced the management team for the $1 billion Sovereign Wealth Fund, which will be led by Alhaji Mahey Rasheed, a board member in First Bank Plc, and Uche Orji of UBS Securities, who will serve as the fund’s Managing Director and Chief Executive Officer.
But the question on the lips of many Nigerians is, “Will this Fund benefit all Nigerians or a few priviledged?”