If the popular saying ‘make hay while the sun shines’ is anything to go by, one can say that it is only a fool or lazy man who will refuse to make hay while the sun is shining.
Making hay is like saving money for the rainy day and for Nigeria, that would mean saving money from crude oil for infrastructural investments, thereby keeping a legacy for Nigerians unborn to build on, without which their future is jeopardised.
No doubt, that was what was on the mind of former Finance Minister, Olusegun Aganga when he presented the bill on Sovereign Wealth Fund (SWF) to the National Assembly, and it was promptly addressed, one of the quickest bills that passed through the National Assembly.
But as it were, it appears only the seed fund of $1 billion initially set aside for the project is still available.
For many analysts who have their sight on the future, it is the best thing that has happened in the country’s polity after a very long time.
To Bismarck Rewane, chief executive of Financial Derivatives (FDC) Limited, this is the kind of savings that will ensure purposeful development.
When the bill was signed into law, he said that was the opening of new investment outlet that will reduce funds for plundering.
Also, Wale Abe said, “it will reduce frivolous spending by the three tiers of government”
When Aganga put the bill forward, he said it will ring-fence savings. But what we have on ground is all squabbling between the executive arm and the legislature over savings.
John Okolo, an analyst based in Lagos, though supports the idea of a sovereign wealth fund sees the fears of legislatures. According to him, the amount that was domiciled in the Excess Crude Account (ECA) was over $20 billion, but it was reduced to just about $1 billion in the twinkling of an eye.
His stance is that, the presidency must convince the legislature and other ‘doubting Thomases’ that the SWF will not go the way of ECA, which he said the executive, particularly Ngozi Okonjo-Iweala has not been able to do.
Okolo believes that what happened to the ECA fund was as a result of the fact that there was no legal stance to determine how much of the oil windfall will be shared among the various tiers of government.
He said, the present finance minister and co-ordinating minister, Okonjo-Iweala should build on the foundation already laid by Aganga to actually ring-fence the country’s savings from being plundered by greedy politicians.
Also, reports by Standard & Poor’s indicate that the country’s chance of a rating upgrade is being hinged on possible growth in the value of the fund. Apparently, this is being hindered by growing tension between the federal government and state governments over revenue allocation.
Analysts say increasing the size of the fund from its initial $1 billion is key to building external buffers that are needed for an upgrade in the B+ rating of Nigeria, Christian Esters, a sovereign analyst at S&P, said.
President Goodluck Jonathan signed the SWF into law in May last year but the 36 states are challenging transfers by the Federal Government, including those to the wealth fund.
The constitution requires government revenue to be shared among local, state and federal authorities.
Esters said, “I don’t think currently we have visibility about how quickly this new Sovereign Wealth Fund will grow.
“It continues to be a challenge for the Federal Government to convince the states to get them on board and to convince them what the advantages would be.”
Okonjo-Iweala however said last month - September 21 that the suit by the state governors would not affect the $1 billion already set aside for the SWF.
She named a management team for the Nigerian Sovereign Wealth Investment Authority on August 28, headed by Mr. Uche Orji, a former Goldman Sachs Group Incorporated, UBS AG and JPMorgan Chase & Co. banker.
Razia Khan, analyst with Standard Chartered Bank, London however warned that, there will not be any benefit unless the funds, whenever they are available are invested.
She said, “ I’m not sure I see the benefit of merely re-depositing those funds with the local banking sector. First of all, it would add to the cost of sterilising Nigeria’s oil windfalls. Second, it would discourage banks from having to do anything real to attract deposits – such as offering more attractive deposit rates to savers – as they would be guaranteed easy money.
“The second idea, investing in strategic companies, and encouraging them to open Nigerian subsidiaries may be an idea. But with the amounts involved in the SWF extremely modest to begin with, it is not clear that Nigeria would own enough of a strategic stake to be able to influence investment decisions in those companies.
“Further investigations showed that oil producing nations currently have over $2.62 trillion held in SWFs. A ranking of SWFs assets, under management by the Sovereign Wealth Fund Institute, which tracks SWF activities around the world, shows that among African oil producing countries, Libya has been able to build up the biggest SWF under management on the continent.
“The Libyan Investment Authority (LIA) set up in 2006, currently has about $70 billion in assets under management, the highest by any oil producing nation in Africa . Algeria ranks second in Africa with its Revenue Regulation Fund set up in 2000 which currently has $57 billion under management”.
Khan said, Nigeria ranks along with Angola and Ghana as countries that have not made any appreciable progress with their SWFs. While Angola and Ghana are relatively new comers in oil production and are in the process of establishing their own SWFs, Nigeria has been producing crude oil since 1958, longer than all the SWFs except that of Kuwait, which has saved $292 billion since 1953 from its oil earnings.
Nigeria is estimated to have earned over $400 billion from crude oil sales since the 1970s, but the only attempt to save part of its oil earnings only started in 2003 when the Obasanjo government set up the Excess Crude Account (ECA).
By 2007, the ECA had more than $20 billion in savings. However the oil price slumped in 2008 and pressures from state governments to share the money have seen the total depletion of the ECA, expected to replace SWF.
Indeed, the decision of the state governors at the recent National Economic Council meeting to finally give their approval to the management process of the SWF was contingent on an increase in the Excess Crude Account (ECA) from $5.3billion to $10billion.
Aganga who had said the SWF will attract infrastructure funds from other organisations from other countries which are ready to invest in the economy agreed with Khan, saying that Algeria which started a similar wealth fund in 2000 has grown the money from its take-off seed of $1 billion to about $50 billion.
He said that even Ghana which has not yet started commercial oil production was already making moves to establish one and that it was the right way to go.