The Sovereign Wealth Fund (SWF) is a state–owned investment fund composed of financial assets such as stocks, property, bonds, precious metals or other financial instruments. Essentially, it is a state owned pool of money invested in various assets .The purpose of an SWF, the world over is to channel a nation’s budgetary surplus back into the country through investments. The essence of the fund which is traceable to Kuwait is to invest excess oil revenues thus generating revenue for future generation and also to act as a buffer for the economy against oil-price fluctuations risk (for countries that are oil-revenue driven economies).

In Nigeria, the SWF was established to address the problems emanating from the operation of the Excess Crude Account (ECA).Before now, excess liquidity (cash) arising from crude oil sales were held in the ECA, which was subject to the whims and caprices of the political leaders thus raising serious issues of transparency and accountability or even the justification for the continued existence of the ECA regime. Although of major contention was the fact that the ECA was essentially an administrative tool developed in 2004 without any recognizable legal backing.

The SWF is thus an interventionist approach by the government to address the perceived shortfalls of the ECA and also bridging the gap between the old regime and the new one. In order to secure a legal foundation for the take-off of the Fund, the President on the 27^th day of May 2011 signed the Nigerian Sovereign Wealth Investment Act 2011 into law.

According to Shafii Ndanusa in his Article- “What Nigeria stands to benefit from its Sovereign Wealth Fund”, the benefits of the Fund to Nigeria are as stated below:

1. Economic Competitiveness: The Nigerian economy will certainly become more attractive for Foreign Direct Investments (FDI). The high level seriousness which the establishment of the NSIA will signal will be a good yardstick for measuring Government’s commitment to the global standards of transparency and accountability in the management of natural resources.
2. Prudence in Resources Management: The culture of unrestricted spending of unanticipated income will be curtailed. Investments will be based on sound, clear and beneficial economic/financial parameters.
3. Availability of a Pool of Savings or Back-up Funds for future generations.
4. Availability of a Counter-Cyclical Economic Stabilization Fund: This will assist in smoothening budget variations in income over a period of time.
5. Availability of an Infrastructure Fund to provide intervention in critical areas of the Nigerian economy. The infrastructure deficit of Nigeria is a major challenge that requires massive investments in resources. This benefit will cut across different sectors in line with due to the multidimensional nature of the potential/actual interventions

HIGH LIGHTS OF THE ACT:

ESTABLISHMENT OF THE NIGERIAN SOVEREIGN INVESTMENT AUTHORITY (NSIA)-

Section 2 of the Act establishes the NSIA as an independent body of full legal status with the objective of building a savings base for Nigerians; enhancing Nigerian infrastructure base and also providing support in terms of economic stress amidst other connected objectives.

Part III of the Act allows for the injection of the sum of One(1) Billion US Dollars drawn from the share of the Federation revenue of the Federal, States, the  Federal Capital Territory ,Local Governments and Area Councils from the Federation Account for the initial take-off of the Fund.

FUNDS TO BE ADMINISTERED BY THE NSIA UNDER THE ACT:

Section 4(1) of the Act empowers the NSIA to manage three (3) classes of Funds. These are:

1. To manage the ‘Future Generations Fund”-Section 4(1) a of the Act defines the Future Generations Fund as a diversified portfolio of appropriate investments for the benefit of future generations of Nigerian citizens. The Fund is essentially of ensuring the legacy of future generations of Nigerians is not squandered by the present generations.
2. To manage the “Nigeria Infrastructure Fund’- Section 4(1) b defines this Fund as a portfolio of investments specifically related to and with the object of assisting the development of critical infrastructure in Nigeria that would attract and support foreign investment, economic diversification and growth.
3. To manage the ‘Stabilization Fund”-Section 4(1) c describes the Stabilization Fund as a portfolio of investments to provide supplemental funding for stabilization of the Federation.

GUIDELINES FOR ADMINISTERING EACH FUND:

1. FUTURE GENERATIONS FUND: Part IV of the Act confers the NSIA  with the power to develop a rolling five (5) year development plan incorporating the means of achieving the objective of providing for future generations of Nigeria. The NSIA can thus invest and reinvest proceeds, interest and dividends on portfolio investments in new or existing assets of the Future Generation Fund. The purpose of this reinvestment is to build a solid savings base for such time as when the oil and gas reserves of the country is exhausted.

As a means of ensuring transparency, Part IV furthers mandates the NSIA to publish its investment plans, policies and procedures in a manner as may be prescribed by its Board from time to time.

1. NIGERIA INFRASTRUCTURE FUND: Part V of the Act empowers the NSIA to develop a rolling five ( 5) year development plan with the aim of engendering the development of basic and essential infrastructure  such as power , agriculture , water roads et cetera through investment.

However, unlike the requirement under the Future Generations Fund, the NSIA may not disclose the details of their financial investments or co- investments with Companies prior to such investment until such a time as is considered appropriate by the Board. It is pertinent to state the following as regards the Nigerian Investment Fund:

1. The NSIA may make 10% investment in any fiscal year  of the funds in the Nigeria Investment Fund in such undeveloped sectors of the economy or regions of the country (tagged ‘development projects”)as a means of promoting economic development.
2. The NSIA may such rules and regulations guiding the submission and evaluation parameters of such development projects.
3. The Act permits the NSIA to engage the services of professionals and advisors as it may deem fit to ensure the viability of each potential infrastructure investment.
4. Funds under the Nigerian Infrastructure Fund may only be deployed as a security instrument in favor of a subsidiary or affiliate of the NSIA and not any other person, company or entity.

1. STABILIZATION FUND: Part VI of the Act designates the NSIA with the power to ensure make such investments and sell such assets for the purpose of stabilizing the national economy. In essence, the NSIA is to ensure that this Fund is available as a last-resort source of finance during periods of budgetary deficits. This stabilization function will thus 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 Legislature for any fiscal year.

OWNERSHIP OF THE FUNDS:

Section 32 (1) of the Act vests the ownership of the Funds in the Nigerian people represented by the governments of the federating units. The Act further  forbids any of the tier of government as owners of the Sovereign Wealth Fund, from transferring, redeeming, assigning, disposing, selling, mortgaging, pledging or otherwise encumbering any of their interest in the SWF.This is ultimately aimed at preserving the exclusive ownership of the Funds in the Nigerian people.

FUNDING OF THE SOVEREIGN WEALTH FUND:

After the deployment of the initial take-off fund of One (1) Billion US Dollars, further funding of the Sovereign Wealth Funds-the Future Generations Fund, The Nigerian Infrastructure Fund and the Stabilization Fund, shall be  as follows:

1. Residual funds  to be transferred from the Federation Account to the NSIA
2. 20% of the initial sum of One (1) Billion Dollars and subsequent funding from the Residual Account shall be disbursed to each Fund (the Future Generations Fund, The Nigerian Infrastructure and the Stabilization Funds respectively) until the amount of funds in each Fund reaches a ceiling percentage of gross domestic product to be determined by biennially upon the assessment of a professional.

CORPORATE GOVERNANCE AND COMPLIANCE WITH INTERNATIONAL BEST PRACTICES:

In complying with the principle of corporate governance so as to promote accountability and transparency, the Act also provides for the modes of appointment, functions, organization and removal of the Board of Directors and the governing council of the NSIA as well as keeping the proper accounting records by the Board etc.

Perhaps more is the fact that Part VII of the Act subscribes to the international best practices in the workings of the SWF by enjoining the NSIA to ensure that the investment objectives of the Fund must be consistent with the principles enunciated in the “SANTIAGO PRINCIPLES”

The Santiago Principles of 2008 comprises of a set of generally accepted principles and practices formulated by the International Working Group of Sovereign Wealth Funds to ensure that the conduct of investment practices of  SWFs is done on a prudent and sound basis. These principles border on such areas as:

a)     Legal framework, objectives and coordination with macroeconomic policies

b)     Institutional framework and governance structure, and

c)      Investment and risk management framework.

Although, subscribing to these principles is voluntary, the overriding objective is to achieve a regulatory benchmark for the operation of SWFs all over the world.

CHALLENGES AND PROSPECTS OF NIGERIA’S SWF:

Perhaps, the greatest challenge to the operation of the SWF in Nigeria is the determination of its constitutionality or legality against the background of the provision of Section 162 of the 199 Constitution. The Section provides as follows:

162(1) The Federation shall maintain a special account to be called "the Federation Account" into which shall be paid ALL revenues collected by the Government of the Federation, except the proceeds from the personal income tax of the personnel of the armed forces of the Federation, the Nigeria Police Force, the Ministry or department of government charged with responsibility for Foreign Affairs and the residents of the Federal Capital Territory, Abuja.(Emphasis mine)

(3) Any amount standing to the credit of the Federation Account shall be distributed among the Federal and State Governments and the Local Government Councils in each State on such terms and in such manner as may be prescribed by the National Assembly.

(4) Any amount standing to the credit of the States in the Federation Account shall be distributed among the States on such terms and in such manner as may be prescribed by the National Assembly.

(5) The amount standing to the credit of Local Government Councils in the Federation Account shall also be allocated to the State for the benefit of their Local Government Councils on such terms and in such manner as may be prescribed by the National Assembly.

The Constitution as can be gleaned from this provision, gives no leeway for the deduction of any part of the revenues of the Federal government, the States, or the Local government into a pool of funds known as the Sovereign Wealth Fund. This thus creates a constitutional challenge upon which the legality of the NSIA is now been contested in the Court of Law by the governors of the Thirty- Six (36) states of the Federation.

Another notable challenge are the concerns voiced by Nigerian over the credibility of the individuals that would ultimately oversee the management of these Funds given the antecedents of similar programmes with identical objectives as the SWF,  for example, the Petroleum Development Trust Fund, which was used  as a corruption vehicle to embezzle public funds.

Also a downside is the fact that it makes no limitations on the class of people or organizations that may invest in the Funds thus creating a security gap as unknown or terrorist organizations with resources could buy into the investment windows created by the Funds.

However, notwithstanding the negatives noted above, the SWF has the capacity to drive the engine of infrastructural growth and development in Nigeria as it would enable the funding of crucial infrastructural projects across the Country.

Also notable is the fact that in many countries of the World where the SWF has been managed in accordance with the International best practices, a ricochet effect is usually created in such sectors of the economy as employment generation, increased wealth and a general improvement in the standards of living of the populace.

CONCLUSION:

It can be deduced that the SWF in Nigeria was set up to achieve three (3) objectives:

a)     To adopt a savings policy in the interest of the future generations of the Country thus discouraging further frittering of the proceeds being derived from the sale of the               country’s oil and gas products.

b)     To act as a stabilization tool at such times when oil prices fall below the projected sum for any fiscal year, and

c)      To serve as the engine room for the infrastructural development in the Country.

While these objectives are laudable, it remains to be seen how they would be achieved.

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