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Tag: Sovereign Wealth Fund

  • How secured is Nigeria’s sovereign wealth fund?

    The recent report and offhand remarks by officials of the International Monetary Fund (IMF) ranking Nigeria’s sovereign wealth as the second weakest after Qatar has set off a chain of reactions with many analysts expressing divergent views. Ibrahim Apekhade Yusuf and Nduka Chiejina in this report focus searchlight on the activities of the Nigeria Sovereign Investment Authority (NSIA), the umbrella body saddled with the responsibility of managing the fund vis-à-vis its networth, corporate governance processes, etal

    For the discerning members of the public the whole idea behind setting up a sovereign wealth fund for any economy is indeed noble. But a situation where such efforts are considered inadequate should naturally be a cause of concern. This has been the bone of contention since the International Monetary Fund (IMF) released its latest report ranking Nigeria second worst in the world on a ranking of sovereign wealth funds.

    Crux of the matter

    A section of the news media had penultimate Friday escalated the report by the IMF on the weak profile of Nigeria’s sovereign wealth fund, thus pitting the country against the Bretton Wood institution.

    Not at ease with IMF report

    Firing the first salvo, the Managing Director of the NSIA, Mr. Uche Orji faulted the IMF, arguing matter-of-factly that the report quoted a third-party data and not the output of the Fund’s research.

    According to the NSIA boss, the IMF’s report and its conclusions were based on the report by the Natural Resources Governance Institute, which he described as strange.

    “Whilst the report does not mention that NSIA, its sweeping generalisation and use of third-party data, raises concerns that diminishes its usage. More importantly, graphing governance against asset size to GDP has limited correlative value. This is basically, for lack of a better word, a flippant piece of work.

    “It is obvious in this report that the IMF prefers SWFs of countries that do not invest in their domestic economies and dislikes countries that want to use part of their resources to develop their own domestic infrastructure.

    The first two funds invest globally and the last fund is focused on Nigeria domestic infrastructure needs, he said.

    The governance process of NSIA, Orji stressed, “Is well documented in its Establishment Act. NSIA has an independent professional Board that through five committees, rigorously oversees the operations of the fund.”

    Echoing similar sentiments, the NSIA in a statement by Titilope Olubiyi Communications Adviser said ‘the content of the April 2019 edition of the IMF Fiscal Monitor Report – Curbing Corruption, has been brought to the attention of the Authority. While the report does not reference the Nigerian Sovereign Investment Authority, its sweeping reference to the Nigeria’s Sovereign Wealth Fund and the use of third-party data raises concerns.

    ‘Since its inception, the Authority has adhered to the strongest principles of governance and as a result is highly rated under the Sovereign Wealth Fund Institute (SWFI) Transparency Index. Over the past 5 years the Authority has consistently ranked in the top quartile of the SWFI’s transparency ranking; currently ranked global joint second which is the highest ranking for any African Sovereign Wealth Fund (https://www.swfinstitute.org/research/linaburg-maduell-transparency-index). It is noteworthy that the NSIA has been used as a case study by some African countries seeking to set up their Sovereign Wealth Funds (SWF).

    Finance Minister reacts

    The Minister of Finance, Hajia Zainab Ahmed, while reacting to the IMF outburst about the country’s sovereign wealth fund said the NSIA is in a much better place than the Buhari-led administration met it.

    “I would say that the Sovereign Wealth Authority has been doing well if you look at where we are starting from, we have achieved quite a lot of progress by building more of the fund from where we met it and by utilising the savings at the Sovereign Wealth Authority for projects that are physically visible. We still have some movements to go but the movement is a positive one.”

    “The governance challenges of commodity-rich countries— that is, the management of public assets— call for ensuring a high degree of transparency and accountability in the exploration of such resources.

    “Countries should develop frameworks that limit discretion, given the high risk of abuse, and allow for heavy scrutiny.”

    A rebuttal from IMF

    Not unexpected the IMF in its rebuttal claimed that the data about the excess crude account was used in its ranking on sovereign wealth funds across the world.

    Abebe Selassie, head of the African department while speaking to journalists on the sidelines of the spring meetings of the International Monetary Fund and World Bank Group, said, “There have been two sovereign wealth funds in Nigeria. There has been the excess crude account (ECA), and the Nigeria Sovereign Investment Authority (NSIA).”

    The NSIA, he admitted has been run transparently and best on standard best practice and it has been doing a good job.

    “The concern that we have is about the ECA, because if you recall that the ECA economically was set up to save resources when oil prices are high, and to be drawn on when oil prices are low. We do not think that the ECA has been doing effectively enough job that way.

    “When oil prices fell, the economy was very hard in the last couple of years, we feel like a much better job could have been done, saving enough more in the ECA when oil prices were at $100 and $120 per barrel.”

    Mr. Amine Mati, the IMF’s Senior Resident Representative and Mission Chief for Nigeria, was also onm the same page with Selassie.

    While reacting to the backlash of criticism of the Bretton Wood institution, Mati said: “In view of recent local media reports, I would like to clarify that the reference to the Sovereign Wealth Funds (SWF) included in Figure 2.16 of the IMF’s Fiscal Monitor showing a low ranking for Nigeria does not refer to the Nigerian Sovereign Investment Authority (NSIA). The NSIA is a Sovereign Wealth Fund that has worked extensively with development partners to ensure it is applying transparency practices that are aligned with the Santiago Principles of transparency, good governance, accountability and prudent investment practices.”

    Points to ponder

    It is instructive to note that Sovereign Wealth Funds first established by Kuwait in 1953, now serves to protect oil economies from boom and bust. The world’s current largest SWF boasts of assets under management of around $1trn. In 2017, Norway’s sovereign wealth fund exceeded $1 trillion.

    Reports have shown that emerging market economies with high levels of international reserves were better prepared to withstand the ripple effects of the 2008/2009 global financial crisis.

    In Nigeria, there are two Sovereign Wealth Funds: the Excess Crude Account (ECA) and the Nigeria Sovereign Investment Authority (NSIA). Note that these two are funded by the savings earned when oil prices are at peak.

    Hence, as a larger chunk of revenue is appropriated for ECA and NSIA rise, external reserves are likely to fall. For instance, in 2018, the National Economic Council (NEC) reportedly approved fresh injection of $650m from the reserves into SWF, and that improved the SWF to $2.15 bn.

    The fund is usually expected to generate revenue to meet budget shortfalls in the future, provide dedicated funding for development of infrastructure and keep some savings for future generations.

    Following the IMF’s latest ranking of Nigeria as the world’s second-worst country in the use of sovereign wealth funds, Nigerians have become critical of the excesses of the government in the mismanagement of the country’s commonwealth.

    Nigeria has reportedly grown SWFs up to $2.53 billion in the last 10 years. Also, Nigeria’s external reserves have continued its bullish run, edging towards $45 billion thresholds. This was last recorded six months ago.

    The Naira has been relatively stable because of CBN’s injections. However, this is only a short term fix which requires appropriate policy restructuring.

    Also, there have been several reported cases of mismanagement of the excess crude accounts. Chief among all is the reported $1.68 billion the Federal Government removed from the ECA in 2018, with claims that the fund was used to offset the last tranche of the Paris Club obligations to states.

    There have also been reported cases of accruals being shared every month during the Federation Accounts Allocation Committee (FAAC) across the three tiers of governments in Nigeria.

    It was recently reported that Nigeria’s external debt stood at $25.2 billion. With external reserves at $44.7 billion, it suggests Nigeria’s external debt is 56% of foreign reserves.

    Also, Nigeria’s Debt-GDP ratio, which reportedly stood at 21.1 percent in 2018, appears good. Yet, there has been concern that the economy is treading a risky path.

    NSIA’s PR stunt

    As if the NSIA had a premonition of IMF’s report the Authority had swiftly circulated a video documentary, which our correspondent confirmed was done in February earlier in the year but which nonetheless came in handy as a good damage control tool in view of the IMF report.

    In the video documentary a certain Asa Borssen, a TV anchor, Series Host, at RawTalks, while speaking with an unnamed guest, as to whether countries succeed because of good sovereign wealth funds, or do sovereign wealth funds succeeds because of good governance, said, “Sovereign wealth fund will not help your macroeconomic framework. You need to have a framework for doing a sovereign wealth fund now. One way to make sovereign wealth fund succeeds is to have strict governance separation between owner and management. And that’s the most important part of managing super funds.”

    Asked to cite any well-managed sovereign wealth fund that people may not have heard of, she said Nigeria is an exemplary one.

    “I think it will surprise people that the Nigerian Sovereign Investment Authority (NSIA) is well managed as it is, given Nigeria’s history through the Excess Crude Account, of less than optimal resource money management. The NSIA was set up in 2012 and it has three ring-fenced separate accounts. One for savings, one for stabilisation and one for domestic infrastructure spending. And those have been well-managed over the past six years, and it will surprise people to hear that Uche Orji’s team has done such a great job in managing that money.”

     

  • States to earn dividend from sovereign wealth fund from 2018

    •Minister hails NSIA over achievements

    THE 36 states will start to receive dividend from the  Nigeria  Sovereign and Investment Authority (NSIA) from next year, it was learnt yesterday.

    NSIA is entrusted with the management of the country’s Sovereign Wealth Fund.

    It was set up in 2014 with a take-off seed of $1 billion from the Excess Crude Account.

    The idea of the agency, which is rated 56th in the world, is to provide the country with a stabilisation fund during economic distress.

    NSIA Managing Director/Chief Executive Director Uche Orji, who spoke yesterday when he received the Minister of Information and Culture, Alhaji Lai Mohammed,  said the agency has been able to make some gains in the last few years and also contributed significantly to the economy.

    Orji posited that though NSIA was not able to give dividends in the last two years, but with the income generated so far, it will be in position to begin to give states dividends as from next year.

    He noted that the agency in the last two years (2014-2016) earned N149.83 billion.

    “We are cautiously optimistic about market conditions as performance in 2017 may be significantly different from prior years. However, we shall undertake tactical rebalance in our assets allocation to achieve sustained profitability,” he added.

    He noted that the agency has made serious achievement in the area of infrastructure, agriculture and health.

    The agency, according to Orji, will partner in funding the $760 million second Niger Bridge project and the Lagos-Ibadan road among other social infrastructure projects.

    Besides, Orji added that the agency intervention in fertiliser has paid off as it has drastically brought down the price of fertiliser from N11,000 to N5,500.

    Overall, the NSIA boss said the agency produced and sold six million bags of fertiliser.

    This, he said, has contributed to the increase in the output of grains and cut in prices.

    He noted that NSIA has been able to revitalise 11 of the 28 fertiliser blending firms.

    The agency, according to Orji, was working on another six, which is expected to come up before the end of the year.

    He said: “An estimated $150 million has been saved in foreign exchange as a result of the local sourcing of two of the project’s raw materials.

    The minister hailed the agency for the great, “but unannounced work it has been doing”.

    Mohammed commended the agency for the adoption of the fertiliser whistleblower policy, with the aim of reducing the activities of fertiliser cabal.

     

  • CBN seeks constitutional backing for Sovereign Wealth Fund

    CBN seeks constitutional backing for Sovereign Wealth Fund

    The Central Bank of Nigeria ( CBN) yesterday asked the National Conference to provide constitutional backing for the Sovereign Wealth Fund (SWF).

    The apex bank highlighted the necessity for the country to save for the rainy day.

    The bank also said there was need for the creation of the office of Accountant-General for Federal Government which would be separate from the existing office of the Accountant-General of the Federation (AGF).

    Acting Governor of the apex, Dr. Serah Alade, who made the demand while the National Conference Committee on Public Finance,  invited her for a chat, noted that it was necessary to invest for the future.

    Alade was represented at the briefing by the bank’s Deputy Governor, Corporate Services, Alhaji Suleiman Barau.

    Alade said: “Nigeria’s Sovereign Wealth Fund was intended to replace the Excess Crude Account (ECA) in order to provide long term savings for economic stabilisation, infrastructural development and generational equity.

    “The ECA has been criticised as a mere arrangement based on a memorandum of understanding among the three tiers of government, thus necessitating the need for a constitutional backing for the SWF to provide for a stable long term saving to address the country’s infrastructure challenges, provide stabilization fund against the volatilities in oil prices/revenues and ensure generational equity.

    “This has been the basis of continuous demand to draw to meet budget shortfalls in the form of argumentation. It is thus, imperative to give constitutional impetus to the SWF established by the Federal Government.

    “We can no longer afford to continue to live from hand to mouth. Public sector savings have become the norm for resource-rich, resource-dependent economies and Nigeria should not be an exception. We must save for today and for future generations.

    “The consequences of operating the federation account as zero account could be mitigated by creating savings for the future generation, enhancing macroeconomic management, and improving economic planning. “Therefore, it is necessary to entrench the excess crude account which can be managed and invested by the CBN. In addition, the SWF could be included in the constitution.”

    The CBN boss warned that the lack of appropriate constitutional mandate to create the SWF, poses operational challenges, which has been the basis for legal contests by the sub-national governments.

    She said: “Our position is that there are rational and emotional sides. Rational side is that everybody saves. “Life is an investment that you have to have. On the emotional side, government should provide the structures to help the private sector. Government cannot employ everybody. May be we need to downsize. May be, the issue is still debatable.”

    Chairman of the committee, Senator Adamu Aliero noted that though SWF policy was not yet in the constitution, it was still necessary to save.

    He said: “It is true that there is no constitutional provision for the SWF, but we have to save for the rainy day. We will recommend to the main body the importance of including it in the constitution. There is a suit now challenging the constitutionality of the SWF. We have to save for the rainy day. Your recommendations are in tandem with the recommendations we received from other revenue agencies.”

  • Reps to probe foreign managers of Sovereign Wealth Fund

    The House of Representatives yesterday mandated its Committee on Commerce and Justice to probe the appointment of foreign institutions managing the nation’s Sovereign Wealth Fund.

    The Committee is to report to the House in two weeks.

    This decision follows the adoption of the prayer of a motion titled: “Contracting the management of the Nation’s Sovereign Wealth to foreign professionals and inherent conflict of interests,” brought before the House by the Minority Leader, Hon. Femi Gbajabiamila (APC, Lagos).

    Presenting the argument for the motion, Gbajabiamila noted that recent reports that three foreign financial institutions namely, Goldman Sachs, UBS and Credit Swiss have been appointed to manage Nigeria Sovereign Wealth Fund, was a source of concern.

    According to the lawmaker, the Managing Director of the Sovereign Wealth Investment Authority and the initiator of the Sovereign Wealth Fund were former Employees of UBS and Goldman Sachs respectively, two of the three foreign managers appointed.

    “The appointment of UBS and Goldman Sachs amounts to a conflict of interests as the MD of the NSIA and the Initiator, former Minister of Finance, Olusegun Aganga are former employees of the two respective institutions contrary to the Code of Conduct provided for under Fifth schedule part 1 of the Constitution of the Federal Republic of Nigeria 1999,” the lawmaker said.

    Besides, Gbajabiamila said that the appointment of foreign Financial Institutions to manage Nigerian Sovereign Wealth “amount to us entrusting Nigeria’s savings, wealth, economic sovereignty and security in the hands of foreigners.”

    He questioned the transparency of the process, saying that the Governing Council for the SWIA, which was established by the Act to advice the authority on matters pertaining to the Fund “was only inaugurated a week ago, long after the appointment of the foreign firms, leaving this House in doubt of the transparency of the process that led to their appointment.”

    The lawmaker said the steps taken by the Nigerian Sovereign Investment Agency if not given a second thought may go a long way in empowering foreign institutions against their Nigerian counterparts, and further entrust Nigerian Economic sovereignty and security in the hand of foreigners; a step too dangerous to the nation’s economic security.

    “We have banks here that operate in foreign lands. It amounts to inferiority complex to let foreign banks do what we can do.

    “Let’s remember that confidence we repose in the foreign institutions

    These same institutions in the near past almost brought the economy of the world to a collapse,” he said.

    Friday Itulah (PDP Edo) while supporting the motion said what the Parliament ought to do is reverse the decision.

    “The issue before us is more than clear. The mover has not said there is anything wrong in having the Sovereign Wealth Fund but putting the management of the funds in foreign hands. It’s an ill wind that will not blow anyone any good.”

    Betty Apiafi (PDP Rivers) opposed the motion, saying that though she shared the patriotic sentiment of the motion, funds such as the Sovereign Wealth Fund are managed by Portfolio Managers and not banks.

  • Sovereign Wealth Fund and intergenerational equity

    On May 11, 2011 the Nigerian Senate approved the Nigeria Sovereign Investment Authority Bill, 2010, which sought to establish a sovereign wealth fund to manage excess profits from the country’s sale of crude oil. Before then, it had been passed by the House of Representatives, in line with the Nigerian Constitution. It was subsequently signed into law by the President of the Federal Republic of Nigeria, His Excellency, Dr. Goodluck Ebele Jonathan, GCFR. More than a year later, on August 28, 2012, the Coordinating Minister for the Economy and the Honourable Minister of Finance, Dr (Mrs) Ngozi Okonjo-Iweala announced the appointment of the Chairman of Board and Management team of the Nigerian Sovereign Investment Authority (NSIA)

    This was a welcome development as there has been a lot of concern by well-meaning citizens about why a major oil producing nation like Nigeria with revenues totaling $50.3 billion in 2011 alone, could not meaningfully establish a sovereign wealth fund like other natural resource-rich nations such as Angola, Singapore, Norway, UAE-Abu Dhabi etc.

    According to experts, a Sovereign Wealth Fund (SWF) is a state-owned pool of money that is commonly established from balance of payments surpluses and funneled into investments rather than simply keeping it in the central bank or channeling it back into the economy.

    However, the major argument for establishing a Sovereign Wealth Fund (SWF) is the idea of intergenerational equity. Natural resources are finite, and through the instrumentation of an SWF, a country can diversify revenue streams by devoting a portion of its reserves to an entity that invests in the types of assets which act as shields against systemic risk, and in the case of Nigeria, against oil related risk.

    Before the creation of the NSIA, surplus funds, mainly emanating from the sale of Nigeria’s crude oil were held in the Excess Crude Account (ECA), which was created in 2004 to act as a stabilization fund against budget deficits arising out of oil price volatility, and to potentially fund domestic infrastructure investments.

    It is important to note that with its establishment and formal take-off, the Excess Crude Account (ECA) has been replaced with the NSIA under three pools namely, the Future Generations Fund, the Nigerian Infrastructure Fund, and the Stabilization Fund.

    Briefly, the Future Generation Fund targets a diversified portfolio of appropriate growth investments in order to provide future generation of Nigerians a solid savings base for such a time as the hydrocarbon reserves in Nigeria are exhausted;

    While the Nigeria Infrastructure Fund will invest in infrastructure projects in Nigeria that meet the country’s targeted financial returns and contribute to the development of essential infrastructure. Potential areas for investment include transportation, energy and power, water resources, agriculture, among others, in order to stimulate growth and diversification of the Nigerian economy, attract foreign investment, and create jobs for Nigerians; and

    The Stabilization Fund will provide stabilization support to the Federation revenue in times of economic stress

    The Nigerian Government injected a take-off cash of $1bn into the NSIA making it the third largest SWF in sub-Saharan Africa, after Botswana’s $6.9 bn and Angola’s $5 bn funds.

    Recently, at the inauguration of the Governing Council of the NSIA Board at the Presidntial Villa, Abuja, on Wednesday, September 18, 2013, President Jonathan stated that the initial $1 billion investment in the Fund is not inconsequential as not many sovereign wealth funds have started out with such amount.

    The President reiterated that although the NSIA take-off gives the Government credibility, its sustainability depends on continuous contributions and broad-based support from all Nigerians.

    The key concern for many Nigerians, however, is to see fiscal astuteness and transparency in the management of the fund, especially, considering the controversy that trailed its establishment.

    According to the Harvard-trained head of the NSIA, Mr. Uche Orji, although the seed funding of $1 billion is a modest sum by global standards, the Fund, through the government’s disciplined contributions, could become one of the largest pools of capital in Sub-Saharan Africa.

    Most importantly, Mr. Orji strongly believes that the NSIA’s sound corporate governance and risk management pillars will be the key factors that sets it apart to achieving its objectives. The enabling Act clearly intends the Fund as an independent organization as has been captured in its “F-I-T “operational model, namely, ‘Financial sustainability, Independence in decision-making’; and Transparency in process.

    In line with its mandate, the NSIA makes investment with the expectations of profitable returns. Already, the authority is working hard to evaluate a number of infrastructure projects across the country some of which include Second Niger Bridge, Gurara Dam Phase 2, seaports investment and an aircraft leasing company to ease the financial burden in the airline industry and promote greater visibility in its operations.

    It is hoped that the development of well-conceived infrastructure projects by the Authority will also provide a platform for national pension funds to invest in credible undertakings.

    Earlier in September, the NSIA made its first investment of $200m in US treasuries and a US corporate bond portfolio.

    For now, it might be presumptuous for Nigerians to appraise the nascent fund, but for establishing international best practices in governance and investment procedures, the 2013 Assets-based Fund Rankings by Sovereign Wealth Fund Institute has placed the NSIA in the top ranking chart of Sovereign Wealth Fund Institute ahead of Venezuela, Vietnam, Indonesia, Australia, Gabon etc. which were all established long ago.

    Unequivocally, the establishment of the Nigerian Sovereign Investment Authority (NSIA) is a mark of political courage on the part of President Goodluck Jonathan. It is fundamentally, a practical component of The Transformation Agenda and the Vision 20:2020; and a further attestation of the Administration’s commitment to fiscal responsibility and building a savings base for the Nigerian people, enhancing the development of Nigerian infrastructure and providing stabilization support in times of economic stress.

    · Dr. Ezenwa writes from Maryland, USA

  • Jonathan inaugurates sovereign wealth fund board

    Jonathan inaugurates sovereign wealth fund board

    President Goodluck Jonathan has again insisted on the need for the three tiers of government to work together for the preservation of the country’s commonwealth.

    He spoke on the background of the series of disagreement that trailed the establishment of the Sovereign Wealth Fund which was created to replace the Excess Crude Account.

    The president, who recognised the administrative reality of federal system of government, however noted that the Sovereign Wealth Fund belongs to all Nigerians.

    He posited that all tiers of government must work to preserve the commonwealth and guarantying the future “prosperity of our nation.”

    The president spoke on Tuesday when he inaugurated the management board of the Sovereign Wealth Fund.

    One billion dollar take off seed grant was agreed by the three tries of government from the excess crude account.

    The Board of the Nigeria Sovereign Investment Authority is headed by Mahey Rasheed, a former deputy governor of the Central Bank of Nigeria.

    The management of the fund has been an issue of contention between the federal government and the states.

    The governors had raised concerns about the management of the fund as they feared that it will be manipulated by the executive arm who is the custodian of the fund.

    Besides, the governors had also nursed the fear of arbitrary use of the fund by the federal government.