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Sovereign Wealth Funds for critical infrastructure

By Sonny Atumah

Nigeria got to a giddy height of low crude oil prices which negatively affected our economy and the currency. Foreign Sovereign Wealth Funds (SWF) are now being sought to upgrade critical mass transit and energy infrastructure worth about N25 billion. Vice President, Professor Yemi Osibajo who oversees President Muhammadu Buhari’s economic policies, late October 2015 said that other SWFs have indicated interest in the fund which would be used to address the nation’s dilapidated roads, rail and power infrastructure.

naira sign
Naira sign

Senior Special Assistant to the Vice President, Laolu Akande in a statement on October 29 said money for the planned fund would come from local and international sources including Nigeria’s sovereign wealth fund and domestic pension funds. We quite appreciate such moves of mobilizing funds to solve Nigeria’s decaying and ailing infrastructure, but a word of caution for domestic pension funds and misuse of such funds recently. Well, it is a new government.

The Nigeria Sovereign Investment Authority (NSIA) Act 2011 was enacted to receive, manage and invest in a diversified portfolio of medium and long term revenue for the three tiers of government. It is to prepare for the eventual depletion of the hydrocarbon resources for the development of critical infrastructure in Nigeria. It will attract and support foreign investment, economic diversification growth and job creation in Nigeria.

Nigeria Sovereign Wealth Fund in the NSIA Act was brought to replace the Excess Crude Account (ECA) (that became controversial) giving it jurisdiction over the country’s excess petroleum revenues. The fund is intended as stabilization against future economic instability, development of the country’s infrastructure and savings for future generations to protect Nigeria’s economy from external shocks.

It is unfortunate that states never appreciated the sovereign wealth fund when it was introduced in Nigeria. Then we had become so profligate in spending and prodigal in their shares to repossess that states demanded theirs from the Excess Crude Account which was a buffer. They never thought a rainy day would come. When it did come they cried for a bail out from the same Federal government they took to court.

The 36 state governors went to court seeking an order declaring the creation of the sovereign wealth fund illegal and unconstitutional. They challenged the Federal Government to pay into the federation account 5.51 trillion being the balance of the revenue that accrued to the central purse between 2004 and 2007 from the crude oil sales, petroleum profit tax and oil royalties.

The Supreme Court late last year gave two tiers of government (Federal and states) a window to resolve the lingering issue of the Sovereign Wealth Fund (SWF) and report back in March 2016. While adjourning the case, the Chief Justice of Nigeria (CJN), Justice Mohammed Mahmoud, who presided over the matter, urged the parties to resolve the dispute before the next adjourned date or the court would go into full trial. For now the jury is out.

The CJN noted that the matter had lingered for long; since 2008 and that such a matter was better resolved outside the court. The Supreme Court adjoined till March 8, 2016 in the suit filed by 36 governors against the Federal Government over the dispute arising from the maintenance of an excess crude account and the transfer of one billion dollars from the account into the SWF.

Countries that export crude oil put away some as sovereign wealth fund. According to the Sovereign Wealth Fund Institute (SWFI) the global assets under management was $7.1 trillion by March 2015. Of the total world assets, $4.29 trillion came from oil and gas sovereign wealth funds which are funded by revenues from energy exports.

The world’s largest SWF is Norway’s Government Pension Fund Global put at $882 billion and funded by Norway’s oil revenues. The fund generated an annual return of 3.8 percent between 1998 and 2014. The fund has invested $576 million in London’s prime real estate district, Mayfair. It has also invested in 9,000 companies and has investments in 75 countries.

Kuwait Investment Authority (KIA) is the oldest sovereign Wealth Fund in the world with $592 billion of assets under management. It was established in 1953 to invest the country’s surplus oil revenues. It is of note that the KIA has its long term objective to provide “an alternative to oil revenues which would enable Kuwait’s future generations to face the uncertainties ahead with greater confidence.”

The world’s top ten sovereign wealth funds in descending order are Norway Government Pension Fund Global worth $882billion, Abu Dhabi Investment Authority with assets worth $773 billion, SAMA Foreign Holdings of Saudi Arabia worth $759.2 billion, China Investment Corporation (CIC) $746.7 billion, and Kuwait Investment Authority (KIA)$592 billion.

Others are SAFE Investment Company  the Hong Kong subsidiary of China’s State Administration of Foreign Exchange (SAFE)  $547 billion, Hong Kong Exchange Fund another Chinese sovereign wealth fund $440.2 billion, Government of Singapore Investment Corporation(GIC) $344 billion, Qatar Investment Authority $256 billion, and China’s National Social Security Fund $236 billion.

As we borrow funds from these SWFs to commit to roads, rails, power plants, power transmission lines let us assume a lot of the projects should be rural- based and funds committed to maintenance. Nigerian engineers, technologists, and all other relevant professionals should be involved in the engineering, construction and procurements (ECP) to acquire skills.

Experience had shown that relevant professionals are only involved in procurement inspections in factories of equipment manufacture overseas. Enforceable codes and regulations should be embedded in our ECPs to make the proposed infrastructural spending worth the investment.

We should not ignore the petroleum process plants, iron and steel sectors as critical stimulants in the checklist. They activate the growth enhancers of agriculture, power, roads, rail, manufacturing and housing if we aim at having a diversified, sustainable and inclusive economy for development.




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