Sovereign Wealth Fund: Task before the Rasheed led board

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By Babajide Komolafe

The leadership  of the Nigeria Sovereign Investment Authority (NSIA) established to manage the nation’s Sovereign Wealth Fund (SWF) faces a Herculean task given the controversy surrounding the establishment of the fund.

The eight member board to be led by former director of First Bank Plc, Mahey Rasheed, as the Chairman, with Uche Orji, a former Managing Director of JP Morgan, as the Chief Executive Officer was unveiled recently by the Minister of Finance and Coordinating Minister of the Economy, Dr. Mrs. Ngozi Okonjo-Iweala. Other board members are Jide Zeitlin, Bili Awosika, Arnold Akpe, Hassan Usman, Bisi Soyebo and Stella Ojekwe-Onyejeli.

The first task before the board is to prove that the Fund is indeed independent as enshrined in its enabling act namely the Nigeria Sovereign Investment Authority (NSIA) Act 2011.

A Sovereign Wealth Fund (SWF) is a state owned investment fund with the mandate to invest globally in financial assets such as stocks, bonds, property, precious metals or other financial instruments.. They are used to manage revenues in excess of budget estimate or what the country presently needs.

Among other things, SWFs are used to mazimise returns on a country’s reserve, save for future generation, and help to smooth fluctuations in revenue, thereby, protecting the economy from the severe impact of such fluctuations. Consequently,  SWFs have  becomes an acceptable and popular phenomenon across the world, with more countries, especially emerging countries, and countries that rely solely on export of commodities for income.

These include Norway, which has the largest SWF, Kuwait, Singapore, China and United Arab Emirate. The SWFs controls about $20 trillions worth of investment in stocks, bonds, hedge funds and in  many global companies such as Citibank, and Merrill Lynch.

When the former Minister for Finance and presently Minister for Trade and Investment, Mr. Olusegun Aganga initiated the establishment of SWF to replace the Excess Crude Account (ECA), it was greeted with a lot of criticism. The state governors opposed it, arguing it was unconstitutional, and in fact, had instituted a legal action to that effect.

Some economic players and eminent Nigerians also opposed it on the grounds that a nation like Nigeria bedeviled with high unemployment, inadequate and inefficient infrastructure is not ripe for such Fund. But beneath this opposition is fear that such fund might be monopolized by the federal government and manipulated for political purposes.

The Aganga initiative became a reality May last year, when President Goodluck Jonathan signed into law the Nigeria Sovereign Investment Authority (NSIA) Act 2011 into law.

The Act creates three vehicles for investment namely: Future Generations Fund, Infrastructure Fund and the Stabilization Fund. The NSIA is to develop investment plans pursuant to the most effective policies and guidance targeted at achieving the aim of such investments. Furthermore, the NSIA is empowered to reinvest all realized proceeds and dividends from and interest on portfolio investments of Funds into new or existing assets of the Funds

The Act makes NSIA an independent body capable of holding, acquiring and disposing assets and suing in its corporate name. This implies NSIA will not be subject to the direction and control of any person or authority in Nigeria.

The Act provides for the establishment of a Governing Council headed by the President. Other members of the Governing Council include Governors of the 36 states, the Ministers of Finance, Justice and Planning, the Governor of the Central Bank, the Chief Economic Adviser to the President, Chairman of the revenue, mobilization, allocation and fiscal commission, two representatives of the civil society, four eminent academics, two representatives of the Nigerian youths and two representatives of the private sector.

According to the Act, the Council shall in the discharge of its duties observe the independence of the Board and officers of the Authority.  The Board of Directors of NSIA to be headed by the Managing Director shall be independent in the exercise of its responsibilities under the Act.

No doubt the first test the management of the NSIA would have to pass is the test of independence. The opponents of the creation of the Fund will watch and scrutinize every move and decisions of the team to discern any sign of the involvement of the federal government in the running of the Fund.

Such suspicion is however not unique to Nigeria. Globally, investors, regulators and academics have expressed concerns about the transparency and state control of the operations of SWF. There are also concerns about the size and source of their funds, investment goals, internal checks and balances, disclosure of relationships, and holdings in private equity funds.

The need to address these concerns led to the development of the Santiago Principles, a set of Generally Accepted Principles and Practices (GAPP) for SWFs. For example the fourth GAAP Principle requires clear and public disclosure of policies, rules, procedures or arrangements in relation to SWF’s general approach to funding, withdrawal, and spending operations. On its part, the sixth GAAP Principle proposes clear division of roles and responsibilities under the SWF’s governance framework to facilitate accountability and operational independence.

But, analysts at ainablanckson, a law firm, argued that, “While the recent Nigerian legislation contains extensive provisions in line with GAAP above, a lot still remains to be achieved in the area of transparency and accountability as well as proper reporting mechanisms.”

“It is hoped that extensive compliance will be achieved in subsequent Regulations, Guidelines and Procedures to be implemented by the NSIA”, they said in a newsletter titled, “Sovereign Wealth Funds in Nigeria: An overview of the Enabling provisions.

According to Mazi Okechwu Unegbu, Managing Director/chief Executive, Maxifund Securities Limited, the second task before the NSIA management team is to do the right thing. He said that though he doesn’t support the creation of the SWF, he said his advice to the Rasheed led team is that they should do the work as a sacrifice for the rest of the country.

According to the ainablanckson report, doing the right thing is the only way the country can enjoy the objectives and benefits of having a SWF and thus win over those opposed to its establishment.  Thus they advised, “The NSIA would do well to adopt best practices from existing SWFs, such as the Norwegian SWF’s practice as well as the Chinese SWF practice, to mention a few. This should help domestically in improving the management of Nigeria’s public finances and supporting growth, as well as in placing the country in a strong financial position internationally.”

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