Buhari and the Sovereign Wealth Dilemma By Segun Adeniyi

When the Edo State Governor and Chairman of the National Economic Council (NEC) Ad-hoc Committee on the management of the Excess Crude Account (ECA) and related federation accounts issues, Comrade Adams Oshiomhole, recently threw a big dart at the Sovereign Wealth Fund (SWF), I was not one bit surprised. However, given the season we are in, there is the temptation for some people to believe that the Nigeria Sovereign Investment Authority (NSIA) is being accused of corruption or mismanagement of fund. That is not the case even though President Muhammadu Buhari has a serious problem on his hands on the issue.

Before I go further, let us also be clear about what Governor Oshiomhole said: “The Sovereign Wealth people in their report to us, which I have in black and white, showed clearly that they have only $300 million left in the Sovereign Wealth Fund account. We have it in black and white and I can publish it if anybody wants to deny that because it was not submitted to me secretly. It was submitted at plenary of the committee. And then we asked, because I knew that the fund was $1 billion, what was done with $700 million. And they said they have made some investments. We asked them what they invested in and they said the Second Niger Bridge and partially in Kaduna-Abuja rail. That is what they said and I was not alone there.”

To the extent that the NSIA is an investment institution, it is not expected that it would keep funds as idle cash so its monies, from all available records, have been invested in various asset classes such as stocks, bonds, commodities, currencies, real estate etc. and it has done that.

According to the 2014 Annual Report (Balance Sheet), the total assets of NSIA as at 31 December 2014 was N 177.84billion. The prevailing exchange rate at the time was N167.5 to an American Dollar so the total asset figure roughly amounted to $1.061billion in assets. Cash and cash equivalent left with NSIA, according to the official financial statement, was N49.9billion (about $298million). That perhaps was what the Comrade-Governor was alluding to. But the greater portion of the seed capital, according to available records, was at that period in investment securities and amounted to N117.747billon ($703million), mostly managed by JP Morgan. And since most of their investment portfolios are denominated in US Dollar, that has shielded their assets from currency devaluation, depreciation or other forms of economic impairment.

However, the real problems with the NSIA are political and legal. By its structure, the ownership is as follows: Federal Govternment (45.83 percent), States (36.25 percent) and the 774 Local Governments (17.76 percent) while FCT has (0.16 percent). Now that some former governors who never hid their displeasure with the structure that led to the emergence of the NSIA are going to be part of the federal government, will their position change? That is a serious question because if there was anything that united most of the former governors under President Goodluck Jonathan, and may have contributed to the breakup of the Nigeria Governors Forum (NGF), it was the (mis)management of the ECA from where the NSIA $1 billion seed money was taken.

Instructively, the most vociferous opponents of the SWF are former Lagos State Governor, Mr. Babatunde Raji Fashola, SAN, and his then Rivers State counterpart, Mr. Chibuike Rotimi Amaechi who was also at the time the NGF Chairman. “I must be clear. I do not support it (SWF) not because I am against savings; I disagree because for me there are fundamental and constitutional issues”, said Fashola who added that the countries given as examples to support the initiative are either monarchies or emirates whereas Nigeria is a democracy.

A lawyer, Fashola said the very idea of a SWF breached the law. “How do we save money by an Act of the National Assembly when the Constitution that created the National Assembly itself says that every monies that come into the accounts of the country must go to the Federation Account and that any monies standing in credit in that Account must be distributed between the states, local government and the Federal Government?” asked Fashola who also raised another poser: “Why do we save money when our entire infrastructure is over 40 years old? This country is running on an infrastructure that was built after the civil war. But the population we had then has multiplied in many folds”.

However, perhaps the most critical argument by Fashola, which was the position of other governors at the time was that of trust. “It is not that the governors are up in arms against the idea of saving. But we are asking what the rules of engagement are and do those rules of engagement work within the rules that bind all of us? Before you save on my behalf, there is also need to address the issue of trust. How efficiently have you managed the funds that the federation has put in your trust? And what makes you the better saver and better investors? And is the saving done within an expectable framework of the constitution? Those are the issues surrounding the Sovereign Wealth Fund. For instance, the excess crude account has no constitutional legality. And I think in trying to find a way around that, we create another solution that will be subject to constitutional scrutiny. And until these issues are resolved, there are risk issues for investors.”

Under the aegis of the NGF, majority of the Governors were able to connect the ECA and the SWF even when these were two separate policy initiatives designed to achieve complimentary outcomes. For instance, the ECA was imposed while the SWF went through a lengthy negotiation process between and among stakeholders who jointly own the federation account before the law establishing it was passed by the National Assembly. But right from the beginning, there wereconcerns by the governors about the proposed governance structure.

As chair of the NGF, Amaechi put his opposition to the SWF rather bluntly: “The Rule of Law eliminates completely the rule of man. Governors agree that the Federal Government should save but the law has to be respected. What the Federal Government has done is a mere kidnapping of our money.” Interestingly, Asiwaju Bola Tinubu, the APC National Leader, also weighed in at the time by describing the SWF as “an illegal looting committed under an Act of National Assembly. It is giving the Excess Crude Account (ECA) another name. Section 162 of the constitution says all revenue must be distributed. You are confiscating the money of the states; you are violating the constitution; it is illegal.”

Now that Fashola, Amaechi, Tinubu and others have moved from the side of opposition to the driving seat of federal government, with 52 percent allocation (as against the 26 for states) and the Federation Account to manage, what are they going to do differently? And more importantly, what will now happen to the NSIA given their rhetoric in the last three years? Will they dismantle the institution, recall the investments made and share the money to the Federal Government, the 36 states and the 774 local governments based on the revenue formula? And then, what is the position of President Buhari on this matter? These are issues that have to be addressed.

Signed into law in May 2011 by President Goodluck Jonathan, the NSIA was created by an Act of the National Assembly with a statutory mandate to receive, manage and invest funds in a diversified portfolio of medium and long-term assets on behalf of the three tiers of government. But like the management of the federation account, it has been steeped in controversy even though that has not affected its performance. Last year, the NSIA posted a net comprehensive income of N15.7 billion. Yet it was able to achieve this result with professional staff strength of 19 supported by 11 consultants.

When I spoke with the CEO of the NSIA, Mr Uche Orji on Tuesday, I raised with him one of the whispering campaigns against the institution: that the staff structure is skewed in favour of the South-east where he comes from. But in debunking the allegation, Orji availed me the data containing the staff structure. Currently, this is the way things stand: North-east, 4 percent; North-central, 33 percent; North-west, 4 percent; South-west, 33 percent; South-east, 5 percent and South-south, 21 percent. At Board level, the composition is North-central, 11 percent; North-west, 11 percent; South-west, 33 percent; South-east, 22 percent; South-south, 12 percent and expatriates, 11 percent.

While the charge of South-east domination is unfounded, the lopsided nature of staffing in favour of the South-west and North-central, according to Orji, is because the NSIA management has relied on consultants to hire based on functional requirements so as to get the best hands to address specific human capital needs. But going forward, he said the NSIA would now be mindful of federal character requirements in its recruitment exercise.

The pertinent question now is: do we need the SWF? I think we do. Nothing underscores our need to save more than our current reality. All countries that have recorded significant growth in their pool of SWF and economic transformation through strategic investments in infrastructure started from humble beginnings. For instance, Abu Dhabi, one of the 84 countries that have successfully implemented the SWF, started in 1976 in the middle of an economic crisis with little or no infrastructure. Today, Abu Dhabi Investment Authority (ADIA) has over $773 in Assets Under Management (AUM). With this investment vehicle, Abu Dhabi is transforming its dessert lands into mega cities and investing around the world.

Norway’s story is very similar. Commencing in 1990 with zero seed capital, the country was only able to make its first contribution of $600million after six years of operations. Today, its SWF has been grown into the largest in the world with over $882billion in AUM. The country was noted to have saved $1billion weekly during the 2010 -2014 windfall when oil prices soared to over $120/barrel.

Singapore’s journey to economic prosperity would have been difficult without a disciplined approach to saving. The Temasek, Singapore’s SWF which manages over $266billion today, begun with a modest sum of $40million in 1974. In Africa, Algeria and Libya which begun their SWF in the early 2000 account for more than 80 percent of African SWFs; managing nearly $150billion between them.

For the uninitiated, SWFs are by design government-owned investment funds which are set up to save and/or invest a country’s excess funds (funding above budget). In Nigeria’s case, in years of low oil prices where such surpluses are not available, funds do not accrue to the SWF. There is therefore no conflict between the much needed recurrent expenditure requirements of the country and instituting a SWF.

At inception, NSIA’s intervention road map focused on three major infrastructure projects spread across the country. These included completion of Gurara Dam Phase II in the North, the Second Niger Bridge in the East and Lagos-Ibadan expressroad in the West. In terms of economic viability, the Lagos Ibadan road project was the most feasible, according to Orji. However, the project has been stalled by legal issues with the existing concessionaires. The Gurara Dam, according to him, suffered a similar fate on account of project structuring and regulatory issues. But the Second Nigeria Bridge project, in his words, “is the only feasible project on the table at the moment. NSIA, in partnership with other co-investors are leading the development of the project; and, some commitments have been made.”

However, Orji listed other projects, especially under the Fund for Agricultural Finance in Nigeria (FAFIN) to include a $100 million target agriculture focused fund which provides affordable, long-term capital and technical assistance solutions for the development of commercially viable small and medium enterprises (SMEs) and intermediaries across the agriculture sector in Nigeria but more especially in the North. It was developed in partnership with the Federal Ministry of Agriculture & Rural Development and the German Development Bank (KFW). There is also the NSIA Healthcare Investment and Development Company (NHIDC) that has entered into agreements with six of the leading teaching hospitals in the country located in Lagos, Port-Harcourt, Abuja, Maiduguri, Kano and Umuahia to establish state-of-the-art tertiary specialist hospitals and diagnostic centres. There are many other projects which the NSIA has either invested in or is in collaboration with other stakeholders to buy into.

Given the foregoing, I have no doubt that we need the SWF not only to bridge our infrastructural gap but also so that we can begin to build a culture of savings for future generations of Nigerians. That for me is why President Buhari should lead the efforts to address all the political and legal issues surrounding the establishment of the NSIA so that it can overcome the challenges that have dogged its operations since inception.

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