NIGERIA: Let the sovereign wealth fund begin

on   /   in Finance 12:08 am   /   Comments

One of the curiosities in our current national discourse is this argument over the desirability or otherwise of having a saving and investment scheme as a nation giving the realities of our national circumstance. A nation with so much money, habitually engaging in wastefulness and is somehow ambivalent about saving for the future or against the rainy day, must be a study in self-destruct tendencies.

The sovereign wealth fund (SWF) initiative which Nigeria embarked upon early last year is designed to help the country achieve a turn-around in fiscal attitude and help address our needless tendency to profligacy by setting aside some critical fund for the future.

With the enabling legislation in place NSIA, 2011, Nigeria should truly be seen to have taken the right step forward just waiting for the fund to become fully operational. Never mind the governors’ current challenge of the legality of the fund and by extension its necessity however much they deny the latter which is the subject matter of this discourse.

Basically, SWF are funds of investable foreign currency owned by sovereign entities usually managed separately official exchange reserve of the country. The practice and management of SWF have captured ample scholarly attention and a growing body of literature from the perspectives of legal, policy, finance, management to politics, all of which now exist on the subject matter.

Authors like Balin B,Backer LC, Monk A, Bortolotti et al, Van der Ploeg et al, Gelpern A,  to name a few scholars who have done notable works in this regards. SWF have a huge potential for public wealth creation once well managed. They are similar but different from state owned enterprises (SOE) which are more obvious as part of traditional state ventures.

It used to be the case that governments kept excess foreign reserves as a measure to control unanticipated or anticipated financial crisis, for example, the sub-prime crisis that hit the US in 2008/2009 but now other financial structures have come into being like the SWF.

And so when there is a windfall in national resource earning, a government would have some options open to it; (a) use the fund to manage domestic and external debt, (b) channel the surplus into short term public spending and consumption for example in health, education, agriculture, etc or (c) accumulate public and private capital by transforming the exhaustible resource asset into interest earning foreign assets through setting up an SWF to enable long term financial stability and better fiscal responsibility.

With that conceptual background, one can understand why a sovereign wealth fund is imperative in our national circumstance with the best choice being for us to pursue option (c) above. Now, this writer was privileged to serve in the legal team, along with several Nigerian legal, financial and foreign experts that articulated the broad framework of the fund.

There was the need to find additional use for the Excess Crude Account to limit predatory recourse to the account and create a fund that will be a regenerative and functional part of the fiscal architecture of Nigeria’s financial system.

Such a fund that can help to recondition our public finance mechanism from that of debtor nation steeped in debt management, debt servicing to wealth creation, asset management and a serious voice in the global financial system.

Having an SWF will further help Nigeria become a key player in the emerging platform on the global level where fund owners are earning ample returns from diverse investment portfolios. It will help Nigeria’s credit rating and facilitate foreign direct investments in all the sectors as a direct consequence.

Yes, several issues had to be taken into consideration from the standpoint of our nation as a federal state for example with a maze of contending interests to a global environment in which the fund and its investment direction must wade through geo-political and governance challenges.

This is so because countries like the United States of America remain suspicious of foreign governments acting as state capitalists taking over firms and corporations through the existence of huge funds like pension funds as in Norway or sovereign wealth fund as in China and Venezuela.

Other fears elsewhere include the possibility that such investments may carry with them disguised political purposes. In terms of axis shift, scholars are already beholding the spectre of London, New York, Rome yielding some grounds as global financial centres to Doha, Dubai and Shanghai.

To be sure, these and other legal issues naturally weighed on the minds of the legal team, which it deliberated, evaluated and proceeded satisfied to be pragmatic and progressive in order to produce the legal and governance framework of the fund. There were comparative perspectives to see how the SWF practiced by other nations fitted into their laws.

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