|NIGERIA’S SOVEREIGN WEALTH FUND|
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 27th 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:
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:
GUIDELINES FOR ADMINISTERING EACH FUND:
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.
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:
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:
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.
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.