• Thursday, February 29, 2024
businessday logo


Nigeria’s SWF in an African context: a curate’s egg


The growth in the number of sovereign wealth funds (SWFs) in Africa calls for an attempt to put Nigeria’s own arrangements into context. If we take a broad definition of a fund, more than 15 countries in Africa have one either in operation or on the drawing board.  Kenya’s is the latest creation, and Botswana’s (Pula Fund) the oldest on the continent, established in 1993. The largest is Algeria’s although it was once Libya’s before its substantial losses on positions in derivative products and the cost of the sizeable fees charged by household names in international investment banking for the related expertise.

They take different forms. Close to half of the funds globally draw their revenue from oil and gas although some are not linked to a particular commodity (such as the China Investment Corporation). Some are restricted to purchasing foreign assets such as the Pula Fund while others can top up budget shortfalls like Angola’s FSDEA. In the search for lessons and/or parallels for Nigeria, we note the impressive foundations of the Ghana Petroleum Funds and the impressive growth of the FSDEA.

Commercial oil production started in Ghana more than 30 years later than elsewhere in the region. The time was profitably used to learn how not to manage revenues. The government held an international forum in Accra to draw on numerous case studies. It then embarked upon a consultation across the country’s ten regions, from which emerged a consensus for a new vehicle rather than a reworking of the existing consolidated fund. 

The Ghanaian parliament then passed the legislation establishing the Petroleum Funds. This included the creation of a public interest and accountability committee, composed of civil society representatives from across the country and local chiefs, which is required to produce twice-yearly oversight reports. Parliament can, and does summon government ministers on the basis of the findings in the reports. We do not need to stress the contrast in terms of procedures and transparency with Nigeria’s excess crude account, which has no constitutional basis.

The Petroleum Funds managed assets of US$450m at the end of July.  The FSDEA (Fundo Soberano do Angola) received initial funding of US$5bn in 2012 and should see the sale proceeds of 100,000 barrels of crude oil per day. Procedurally, we should say that the government has appointed an external auditor to the fund (Deloitte), a board of directors for its management and a fiscal board in the enforcing role. The oil revenues reach the fund not directly from Sonangol, the state-owned oil company, but via the Treasury. The chairman of the FSDEA board, José Filomeno de Sousa dos Santos, is adamant that there is no overlap between its investments and those of Sonangol.  Its investment policy is set out in a public document.

Yet it was the Nigeria Sovereign Investment Authority (NSIA) which in July was given nine points out of ten for best practice (its transparency rating) in the Linaburg-Maduell index administered by the Sovereign Wealth Institute, and which now shares the same ranking as the US, France, Malaysia and Brazil. Appointments to the top posts, for example, followed advertisements in the international media placed by recruitment firms.

While the NSIA’s procedures are rated very highly, its record for accumulation compares poorly with Angola. Established by law in May 2011, it received seed capital of U$1bn in the first quarter of 2013 and is currently responsible for assets totaling US$1.55bn in its different vehicles. The law stipulated that the authority would receive a portion of oil and gas revenues in the federation account above the budgeted level on a monthly basis.

This has been blocked by the state governors, who even went to the courts in an attempt to block the payment of the seed capital to the authority. Their objection is that all monthly distributions from the federation account, including any transfers to the authority, should be subject to the formula for sharing revenue between the federal, state and local government. The state governments do receive a share of payouts from the excess crude account, which is consequently their preferred savings vehicle.

There is therefore an impasse and there is no ready solution. In the run-up to the elections in February 2015, the two savings mechanisms (the crude account and the NSIA) are set to run side by side. If the authority is to replace the crude account, the FGN will have to make some fiscal offerings to the governors. Until that point, Nigeria’s fiscal buffers against an external shock remain weak, and unable to withstand, for example, a sharp and sustained fall in oil revenues. The monetary authorities are worse prepared for such a shock today than they were in December 2008, when the price of Bonny Light very briefly slipped below US$40/b and when official reserves were close to US$53bn (vs US$40bn currently). 

A sovereign wealth fund is not the complete answer. If we take one rationale for such funds, we note the findings of the independent Natural Resource Governance Institute that only four globally have stabilised government spending over a sustained period. They are Qatar, Chile, Norway and Saudi Arabia. Nigeria’s is a long way from joining this group although through no fault of its own.

Gregory Kronsten