The Take-Off Of The Nigeria Sovereign Wealth Fund: Things To Watch Out For By Shafii Ndanusa
shafiie@hotmail.com
Background
Dr. Ashby
Monk and Professor Gordon L. Clark are two researchers known for their
extensive work on Sovereign Wealth Funds (SWFs). Regular publications
arising from their distilling research initiatives on different
aspects/issues affecting sovereign wealth funds in all parts of the world
get posted on the Oxford SWF Project website. Policy makers, practitioners
and other researchers regularly enrich their knowledge and understanding
on the SWF subject matter by visiting this website from time to time.
Under
recent publications on this website is a paper jointly authored by
Professor Gordon L. Clark and Dr. Ashby Monk and published with the link
titled; Modernity, Institutional Innovation and the Adoption of
Sovereign Wealth Funds in the Gulf States. The abstract to this paper
begins with the following:
“Whereas
debate about sovereign wealth funds (SWFs) often focuses upon the global
significance of their investment strategies, these institutions are also
emblematic of the new global order of financial capitalism. SWFs are a
mechanism for states to advance their interests through global financial
markets and are a switch point for the translation of resource assets into
financial assets in global markets. Yet, realizing the promise of SWFs is
not easy”
If leading
global researchers on SWFs are of the view that realizing the promise of
SWFs is not easy, then it is important that those charged with the
responsibility of realizing the promises of setting up SWFs particularly
in countries and cases with new SWFs take proper note. On the 28th
of August 2012, the Federal Government of Nigeria unveiled the board
membership of the Nigeria Sovereign Investment Authority (NSIA). The NSIA
is to oversee the management of Nigeria’s three Sovereign Wealth Funds
namely:
Nigeria
Future Generations Fund
Nigeria
Infrastructure Fund
Nigeria
Stabilization Fund
The NSIA
Act 2011 was reported to have been signed into law on 27th May,
2011. Apart from the successful passage by the Nigerian Parliament of the
NSIA Bill and the granting of Presidential Assent to the Bill, the recent
constitution of its board membership is the next most significant
milestone in pursuance of the noble goals behind the establishment of the
NSIA. Although, the NSIA is designed to have a Governing Council as its
highest organ of governance above the Board of Directors, the role of the
Governing Council is basically to providing general guidance and advice.
It is
Not Yet Uhuru
With the
NSIA board in place and its operations expected to kick-off in October
2012, the country is truly on the path to creating long-term investments
and benefits for the entire citizenry. However, as the victory of this
achievement is being celebrated it is important to note that it is not yet
Uhuru. For the NSIA, this is just the beginning. It is prudent to recall
that it took fifteen (15) calendar months from the period the NSIA Act was
signed into law (May 27th, 2011) to the date the board was
constituted and unveiled (28th August, 2012). Many thanks to
the initial opposition received from the Nigeria Governors Forum (NGF).
The opposition from the State Excellencies resulted in heated debates,
negotiations and further delays in the implementation of the SWF
initiative.
Because
State Governors in Nigeria are by law members of the NSIA’s Governing
Council, securing their buy-in at every stage of the implementation is
important. Finally agreeing that the NSIA Board be constituted with only
the take-off grant of the sum of One (1) billion United States Dollars,
the stage is now set for the next phase of the imbroglio between the State
Governors and the Federal Government. The Excess Crude Account (ECA) which
ought to have been completely abolished from the moment the NSIA Act was
signed into law (on 27th May, 2011) is still very much in
existence. The status of the ECA remains at the centre of the disagreement
between the different tiers of Government.
Outstanding Issues
Unless the
issues surrounding the status of the ECA are permanently resolved, it
would impact negatively on the ability of the NSIA to deliver on its
promises. The Supreme Court of Nigeria may have to adjudicate on the
matter if the out-of-court settlement options fail. Firstly, if by the
end of December 2012, the ECA issue has not been fully resolved between
the different tiers, it could well mean that the NSIA Board would not have
the right foundations for projecting future revenue inflows from excess
crude sales.
This again
would impact negatively on the immediate need for the NSIA Board to
develop a strategic plan that is realistic and achievable. If the validity
of the strategic plan is in doubt as a result of revenue uncertainties,
then the annual operating plans that should derive from the strategic plan
would largely become unreliable. When financial resource plans cannot be
relied upon with certainty, then the risk of failure in the course of the
implementation of programs and projects is actually heightened. This
particular scenario is not what a new organization like the NSIA needs. As
such, all hands must be put on deck to resolve the Excess Crude Account
impasse once and for all.
A Threat
to the Planned and Sustainable Growth/Development of the NSIA
The Nigeria
Sovereign Investment Authority is scheduled to kick off operations with
One (1) billion US Dollars in the month of October, 2012. This amount is
almost insignificant when compared to the Six Hundred and Twenty Seven
(627) billion US Dollar total asset base of the Abu Dhabi Investment
Authority (ADIA). The cumulative total asset under management of all the
global SWFs as at today is in excess of Five (5) trillion US Dollars.
Nigeria, being a major producer of crude oil in the world accounting for
just One billion US Dollars of this sum certainly can do better than this.
This is why
it is critical for all the outstanding issues surrounding the Excess Crude
Account to be resolved quickly and decisively. This issue has a direct
impact on the amount of revenue that the NSIA would receive periodically
from Government. In the economic life of a nation, there is always the
time to face the economic demons.
If we
assume that the issues surrounding the ECA have resolved and that the NSIA
receives an average of 1.5 billion US Dollars as monthly revenue. It would
take at least four hundred and seventeen (417) calendar months to hit the
627 billion US Dollar point of the Abu Dhabi Investment Authority.
Hypothetically, this should happen in about thirty five (35) years from
now (Fiscal Year 2047), all things being equal.
In several
scholarly comparisons of SWFs, the ADIA is used as a benchmark. This is
because it is regarded as the flagship SWF, the largest in total asset
size and established since 1976. It is instructive to note that the Abu
Dhabi Investment Authority was established with crude oil savings some
twenty (20) good years after the commercial discovery of crude oil in
Nigeria in 1956 at Oloibiri. This speaks volumes for how much financial
savings, economic resources and opportunities have been lost by the
country as a result of the delays in the establishment and take-off of the
Nigeria Sovereign Wealth Fund.
Benchmarking for the Future
Without
doubt, it would take quite some number of years before the NSIA would be
able to make serious impact (in financial terms) within the global SWF
community. During this time, there will be a lot to learn from the
experiences of those that have gone ahead.
Although
and for now the ADIA is commonly used for benchmarking due to its size and
experience, I do not see it remaining the flagship SWF even within the oil
income-funded category of SWFs. I foresee that within the next five years
and perhaps very soon, it will lose that position to a more aggressively
growing SWF. Based on my personal observations relating to annualized
average growth rates in their total asset size, any of the following four
SWFs may rise to the pole position in terms of total asset size under
management:
The
Government Pension Fund owned Norway
The SAFE
Investment Company owned China
The SAMA
Foreign Holdings owned by Saudi Arabia
The China
Investment Corporation owned by China
The total
asset sizes and year of inception for the above listed SWFs as at July
2012 are contained in the latest ranking of SWFs published on the
sovereign wealth fund institute website. Benchmarking of performance
should therefore not only be static (in present time) but also futuristic
(in future times) in scope. In this way, the NSIA can identify how much
effort and resources would be required to achieve a certain ranking within
the global SWF club.
An
Amazing Discovery
According
to the CIA World Factbook, Nigeria is the tenth largest producer of crude
oil in the world. Nigeria produces more crude oil than many countries with
well-established and thriving SWFs. According to the World Factbook,
Nigeria produces more crude oil than each of the following
countries/group:
Kuwait
Venezuela
Brazil
The
European Union
Norway
Algeria
Libya
Qatar
United
Kingdom
Indonesia
Truly
amazing! And to think that the Nigeria Sovereign Investment Authority in
the year 2012 is just worth One (1) billion US Dollars……there is obviously
a lot of work to do.
Mr.
Shafii Ndanusa
is
designated as a Fellow of the Association of Chartered Certified
Accountants (ACCA), United Kingdom, a Member of the Institute of Chartered
Accountants of He holds a Bachelor of Science degree in Accounting and a
Master of Business Administration degree with specialization in Finance.
He wrote from Abuja. Nigeria.
Emails:
shafii@accamail.com,
Phone: 2348033713910
Mr.
Shafii Ndanusa FCCA
has carried out extensive research and authored several publications on
the subject of Sovereign Wealth Management. He is also the author
of a book titled; Bankruptcy and Survival in Times of Economic
Uncertainty, published and distributed by the Xlibris Corporation in
the United Kingdom. |