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Nigeria plans to set up sovereign wealth funds

Nigeria will soon join the economies of the world that have used their foreign reserve to set up sovereign wealth funds to create more assets for the country with foreign reserves.

This fact was disclosed yesterday by the minister of Finance Dr. Mansur Murhtar. Briefing journalists of the out come of the several meetings the Nigeria delegations to this year’s World Bank/IMF annual meetings in Istanbul, Turkey had with the IMF/World Bank officials and the Africa caucus meeting, he said that Nigeria is considering the setting up of the fund with its reserve in order to create value for the nation.

Sovereign wealth funds are Pools of money derived from a country’s reserves, which are set aside for investment purposes that will benefit the country’s economy and citizens. The funding for a sovereign wealth fund comes from central bank reserves that accumulate as a result of budget and trade surpluses, and even from revenue generated from the exports of natural resources.

The types of acceptable investments included in each sovereign wealth fund vary from country to country; countries with liquidity concerns limit investments to only very liquid public debt instruments. Some countries have created SWFs to diversify their revenue streams. For example, the United Arab Emirates (UAE) relies on oil exports for its wealth; therefore, it devotes a portion of its reserves to an sovereign wealth that invests in other types of assets that can act as a shield against oil-related risk.

The amount of money in these SWF is substantial. As of May 2007, the UAE’s fund was worth more than $875 billion. The estimated value of all SWFs is pegged at $2.5 trillion.

Sovereign funds have existed at least since the 1950s, but their total size worldwide has increased dramatically over the past 10–15 years. In 1990, sovereign funds probably held, at most, $500 billion; the current total is an estimated $2–3 trillion and, based on the likely trajectory of current accounts, could reach $10 trillion by 2012.

Currently, more than 20 countries have these funds, and half a dozen more have expressed an interest in establishing one. Still, the holdings remain quite concentrated, with the top five funds accounting for about 70 per cent of total assets. Over half of these assets are in the hands of countries that export significant amounts of oil and gas. Norway has a large sovereign fund, as do places as disparate as Alaska, Canada, Russia, and Trinidad and Tobago. About one-third of total assets are held by Asian and Pacific countries, including Australia, China, and Singapore.

According to the Minister the Ministry of Finance, the Central Bank of Nigeria and members of the National Assembly are already discussing the idea as there is need to have a legal instrument to back up the creation of a Nigeria sovereign wealth fund. The fund when created he said will help the country to diversify its revenue base and increase the stream of income flow into the federation account.

He said that the Nigeria team is in Istanbul to pursue broad based goals that will enable the country achieve macro economic stability that will Nigeria derived the maximum benefit of its membership of the Bretton Wood multilateral Institution. He said that both the management of the IMF and the World Bank have acknowledge the progress so far made in by Nigeria in economic recovery efforts though the future is being viewed with cautious optimism.

He also said that Nigeria and other Africa countries are pushing for an increased Africa voice at both the World Bank and IMF stating that an addition executive seat is being asked for at both institution for Africa. He said that at the World Bank level Africa caucus is pushing for an Executive board member which the Bank board has conceded while at the IMF, the Africa group is calling an alternate board member.

He said that Nigeria and South Africa
Dr. Mansur said that the Africa caucus is equally urging the Bretton Wood Institutions to liberalise their employment policies in order to accommodate more Africa personnel in these institutions. He said this has become imperative as it is Africans who actually know the real problems of the continent and be favourably disposed to committing resources to such problems.

He further disclosed that it is the view of the Africa group that the headship of the Bretton Wood Institutions should not be limited to certain region of the world but should be open to all qualified members of the institutions. The minister told journalist that both the Managing Director of the IMF, Mr. Dominique Krauss Khan and the World Bank President have expressed satisfaction with the reforms that are currently on going in the country.


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