The Nigeria Sovereign Wealth Fund Dispute: Options For Resolution And The Way Forward

By

Shafii Ndanusa FCCA

shafiie@hotmail.com

                                                                                  

 

Background

 

Published in the July 2011 Edition of Financial Nigeria; a monthly development and finance journal is an article authored by me and printed with the title; The Nigeria Sovereign Wealth Fund: Avoiding the Pitfalls of Implementation. In the said article, I attempted to highlight the likely challenges that the Nigeria Sovereign Wealth Fund could face in the course of its implementation. Shortly after that publication was released, I came to accept that I was actually more theoretical in my presentation of that article. Accordingly and in line with good practice, I now wish to be more practical and pragmatic on the same subject matter. In the end, I simply hope that my analyses and recommendations would add value to resolving the issues at stake in relation to the subject matter.

 

It will be recalled that after so many years of earning excess revenues from crude oil without commensurate benefits to majority of the citizenry, Nigeria finally subscribed to international best practice in the management of excess income accruing from the exploitation of its hydrocarbon resources. The enactment of the Nigeria Sovereign Investment Authority (NSIA) Bill was the country’s response to the resource curse syndrome. It is commonly known that on Friday; the 27th of May, 2011 the President of the Federal Republic of Nigeria signed the NSIA Bill into law.  

 

The implementation of the Nigeria Sovereign Investment Authority Bill has however been stalled by objections from the key stakeholders (State Governors). Details of the efforts at resolving the disagreements between the State Governments and Federal Government have largely been out of the public spotlight. Media reports indicate that the Supreme Court of Nigeria has been invited to adjudicate on the matter while alternative attempts at dispute resolution are being recommended and considered for both parties.

 

The Probable Cost of a Supreme Court Judgment on the Matter

 

I am totally convinced that should both parties (Federal and State Governments) fail to settle the Nigeria Sovereign Wealth Fund issues amicably and out of court, a Supreme Court judgment on the matter could have far reaching consequences for all parties. While the Supreme Court Judgment may clarify the many issues raised by the dispute, it will certainly deepen the level acrimony and distrust between both parties. It will almost always be difficult to predict how each party will eventually handle the outcome of a Supreme Court judgment on the matter.

 

It is from this vantage point that I believe that the best course of action is for both parties to negotiate and resolve all the major issues amicably.  This I believe to be a prerequisite for promoting further understanding, co-operation and fellowship amongst all the tiers of governments in Nigeria. Ultimately, all Government efforts are geared towards improving the socio-economic life of the citizenry.

 

The Bone of Contention with the Nigeria Sovereign Wealth Fund

 

It is my understanding that the real challenge that the State Governors have against the Nigeria Sovereign Wealth Fund (as it is presently constituted by the NSIA Act passed by the National Assembly in May, 2011) has nothing to do with the NSWF idea but with the way it is to be implemented under the current regime. Particularly, as it relates to excess oil income that were usually kept in the Excess Crude Account (ECA).

 

The Excess Crude Account was an administrative arrangement whose legality has been under attack. In the past, funds from the ECA are usually distributed and shared among the three tiers of Government, in the proportions of the existing revenue distribution formula. The Nigeria Sovereign Wealth Fund by design is expected to replace the excess crude account thereby making the ECA unnecessary altogether.

 

However, the effective oversight and control over the Nigeria Sovereign Investment Authority (Nigeria Sovereign Wealth Fund) actually lies with the Federal Government. This is despite the fact that all the State Governors are by law members of Governing Council of the Nigeria Sovereign Investment Authority. The NSIA Act specifically guaranteed the independence of the NSIA Board and Executive Management. In essence, what this means is that the role of the NSIA’s Governing Council is purely advisory.

 

The ensuing thought pattern therefore seems to be that since State Governors cannot by law exercise effective control over the NSIA (and by extension its funds), then it was unnecessary to include them as members of the Governing Council in the first place (and also by extension the proportion of funds that would have been due to the state governments from the excess crude income). This to me appears to be the bone of contention.

 

I hold the view that informed negotiation is crucial to resolving this impasse. Both parties must approach the negotiation table with the highest sense of responsibility for the entire nation, its constitution and democracy. It is based on the above understanding that I propose the following solutions in the course of informed negotiations which both parties are strongly advised to pursue:

 

 

 

OPTION 1: SEEK AN IMMEDIATE REVIEW OF THE NSIA ACT WHILE ALSO AGREEING TO AN IMMEDIATE PHASED IMLEMENTATION OF THE ACT

 

The objective of this review MUST be EITHER of the following two:

 

1.      Grant State Governments/Governors the ability to exercise some form of effective control over the NSIA and its organs while retaining the key provisions of the NSIA Act as it relates to rights and control over all excess oil income.

2.      To minimize the involvement of State Governors in the NSIA Initiative and thus make it principally a Federal-Government affair. It must be noted that the sacrifice for the pursuing this objective MUST include the NSIA relinquishing its right to access/control over the proportion of excess oil income that ought to been due to all the State Governments. 

 

Merits of Option 1

 

ü      It is accommodating for all parties as it reconfirms the need for establishing a Sovereign Wealth Fund for the prudent management of state financial resources

ü      Choosing amongst the above two objectives will clearly define what the rights, authorities and responsibilities of all parties would entail in the ensuing arrangements

ü      It would enable immediate partial/phased implementation of the NSIA Act in an orderly and generally acceptable manner

ü      It will assist in addressing the issue of fiscal, financial and functional independence of the different parties to the dispute

 

Demerits of Option 1

 

ü    The time and effort that would be required to get members of both parties to reason on the same page by coming to common understandings

ü    The time and effort that would also be required to thoroughly thrash out issues and negotiate an acceptable agreement on all the key issues of concern. If the first objective under this option is considered, detailed negotiations must be carried out with regards to the following areas of the sovereign wealth fund:

 

1.      The Legal and Regulatory framework

2.      The Corporate Governance Framework

3.      The Fund Investment Framework

4.      The Audit and Reporting Framework

5.      The Transparency and Accountability Framework

 

 

 

 

OPTION 2: REQUEST A COMPLETE SUSPENSION OF THE IMPLEMENTATION OF THE ACT WHILE NEGOTIATIONS ARE ONGOING

 

Merit of Option 2

 

ü      It would give all parties the opportunity to start afresh and begin the entire Nigeria Sovereign Wealth Fund initiative from the scratch

 

Demerits of Option 2

 

ü      This option would send wrong signals to the global community about the seriousness or otherwise of the Nigerian governments (at all levels) as it relates to the prudent management of financial resources

ü      It could create an opportunity to use time and meaningless arguments to delay and thus frustrate the entire Sovereign Wealth Fund Initiative

ü      It may return the system to status quo (Excess Crude Account) with all its attendant disagreements, acrimony and mistrust.

 

THE WAY FORWARD

 

Nigeria has spent more than half a century after the discovery of crude oil in commercial quantity at Oloibiri without establishing a sovereign wealth fund. The costs to the country in financial and economic terms are quite enormous. The human, social, environmental, time and development costs also cannot be accurately quantified.

 

To safeguard the present and the future, it is my view that Nigerian Governments (at all levels) should critically examine the importance of prioritizing socio-economic expenditure using the sovereign wealth fund models. Governments are encouraged (at all levels) to set up sovereign wealth funds for structured development purposes.

 

To this end, I strongly recommend Option 1, which should entail the fast-tracked implementation of the NSIA Bill while a comprehensive statutory review is being pursued at the same time.

 

Mr. Shafii Ndanusa FCCA, is a Fellow of the Association of Chartered Certified Accountants (ACCA) United Kingdom, a Member of the Institute of Chartered Accountants of Nigeria (ACA) and a Fellow of the American Academy of Financial Management (FAAFM, USA).