Sovereign Wealth Funds and the 36 govs
At the individual level, man imbibed the saving culture whereby deposits of gold, money or other treasures are put into improvised safes or Asusu and in modern times, banks to provide for future needs. At the community level, cooperatives are formed to pool resources for community development efforts in times of war, famine, flood, disease […]
At the individual level, man imbibed the saving culture whereby deposits of gold, money or other treasures are put into improvised safes or Asusu and in modern times, banks to provide for future needs.
At the community level, cooperatives are formed to pool resources for community development efforts in times of war, famine, flood, disease outbreaks and other natural disasters.
Since the beginning of the debate on the appropriateness or otherwise of the Sovereign Wealth Fund (SWF), a wide rift has been created in the relationship between the federal government and the states with the two sides advancing various arguments some cogent, some puerile to sustain their lines of argument either for or against.
While the Federal Government which is at the centre feels it ought to play the role of the big brother by saving the funds for the rainy day, the states feel it will be shortchanged by the profligacy of the big brother who could at will, withdraw from the fund without due consultations. This mutual mistrust between the two antagonists seems to exacerbate by the day with each side unwilling to yield to the other thus heating up the polity.
The SWF was set up partly as a vehicle to conserve a portion of the money due to the Federation Account from oil revenue in excess of the benchmarks used in budget appropriation by the National Assembly. Before the establishment of the SWF Act, which was signed into law by the President on May 27, 2011, with $1billion seed capital, such ‘excess’ revenues from oil went into the Excess Crude Account created by the Obasanjo regime as ‘savings for the rainy day’.
It is a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments. Sovereign wealth funds invest globally.
Nigeria’s Sovereign Wealth Investment Authority (SWIA) said its aim was to ‘prepare for the eventual depletion of Nigeria’s hydrocarbon resources’. Other reasons advanced by the federal government are that Nigeria needs to leverage on such funds in times of volatility in global oil prices or natural disasters that are likely to overstretch the resources of government.
The Nigerian Governors Forum (NGF) recently rose from a meeting where the governors called for the suspension of the implementation of the SWFs, arguing that the SWFs is illegal because it lacks constitutional backing, expressing preference for sharing the excess crude oil earnings to paying them into the SWFs. They argued that instead of stashing money in funds, they needed it to enable their governments meet the financial demands of implementing the new national minimum wage. The case is already in court.
The story of the SWFs could be likened to the claim by siblings to a common family inheritance, a common cultural practice in Nigeria where the big brother at the demise of the patriarch, naturally takes possession of the assets on the premise that he will hold it in trust on behalf of and for the family only to end up misappropriating it to himself. In the event of a breach of trust, the other trustees could seek redress in a court of law or resign to fate. In some places like in the North and other Muslim societies, such disputes are minimal or do not arise at all as parties to the disputes make a recourse to customary laws and the Islamic laws of inheritance to share the assets without rancour.
The existing revenue sharing formula which is likely to be reviewed in favour of the states could also be applied to the SWFs in terms of sharing the returns on investment using the same ratio if agreeable to all.
The country actually needs such funds to address the challenges of rising insecurity, food insecurity, gully erosion, desertification and excessive flood as a result of climate change.
The SWFs concept is good, although some lingering concerns over it need to be addressed. One of these is its management. Given the endemic corruption that pervades the public sector and the speed with which the Excess Crude Account and the foreign reserves were recently depleted, the concerns about the prudent management of the SWFs by the federal government are legitimate.
The grey areas around the SWFs therefore need further discussions and agreements among the three tiers of government and or constitutional amendment.
To this end, the Revenue Mobilization Allocation and Fiscal Commission as an impartial arbiter must once again, wade into the matter by coming up with a position paper so that parties to the dispute could use it as a guide to resolve the matter amicably out of court.
Mohammed, a Public Affairs Analyst, wrote from Lagos Street, Garki-Abuja