Category: Letters to the editor Written by Mr. Shafii Ndanusa Hits: 2741
When crude oil was discovered in Oloibiri, Nigeria in 1956, not many envisaged that one day this resource will become the major source of foreign exchange earnings for the Nigerian economy. To date, no singular resource has had more fundamental impact on Nigeria for so many years and still counting.The response for most countries is to establish Sovereign Wealth Funds (SWF). The SWF’s are then mandated by law to prudently take care of the windfall that usually follows from the exploitation of such natural resources. The first ever sovereign wealth fund was the Kuwait Investment Authority (KIA) that was established in 1953. The Kuwait Investment Authority is presently valued at about Three Hundred Billion (300 Billion) United States Dollars.
Having carefully reviewed the opportunity cost of not establishing a Sovereign Wealth Fund earlier in the day, the current administration decided to push for the establishment of the Nigerian Sovereign Wealth Fund. Following consultations with relevant stakeholders, the Federal Government finally sent an executive bill to the Nigerian Parliament for the establishment of the Nigerian Sovereign Investment Authority (NSIA).
With this singular effort, the Nigerian Government has communicated to the whole world that it is willing, ready and serious about subscribing to global best practice in the management of its economic and financial resources. The Nigerian Sovereign Investment Authority is expected to replace the Excess Crude Account (ECA). The ECA has been widely held to be inappropriate in view of recent global trends. The ECA is also alleged to have fallen short of meeting the minimum basic standards for transparency and accountability. Going forward it is envisaged that excess income (income beyond the annual budgetary benchmark) from the exploitation of Nigeria’s natural resources (mainly crude oil) will be channeled to the Nigerian Sovereign Investment Authority.
The Nigerian Parliament held a public hearing on the proposed NSIA bill in the month of March 2011. The proposal was well defended by the Federal Minister of Finance; Dr. Olusegun Aganga. Questions raised at the public hearing were responded to and it is expected that before the end of this legislative calendar, the proposed bill would have been passed into law. Time is of essence and it is important to note that with each passing day that the bill is not passed, a lot of opportunity is lost.
1. Economic Competitiveness: The Nigerian economy will certainly become more attractive for Foreign Direct Investments (FDI). The high level seriousness which the establishment of the NSIA will signal will be a good yardstick for measuring Government’s commitment to the global standards of transparency and accountability in the management of natural resources.
2. Improvement in Nigeria’s Credit Worthiness: With Nigeria’s re-entry into in the international debt capital market, access to international credit facilities by governments and Nigerian companies will be made easier. The establishment of the NSIA will facilitate an improved assessment of the nation’s credit worthiness.
3. Significant Reduction in the Resource Curse Syndrome/Experience of Nigeria: The poor management of financial resources arising for crude oil windfalls will become a thing of the past. This is because the need to ensure transparency and accountability is at the heart of the idea for the Nigerian Sovereign Wealth Fund.
4. Significant Reduction in Conflicts between the different Tiers of Government in Nigeria over the distribution of incomes accruing in the Federation Account.
5. Enthronement of Global Best Practice in financial resource management: The Nigerian Government having decided to subscribe to the Santiago Principles in the management of the NSIA is charting a path that is representative of the highest management standards in principles and practice.
6. The proposed NSIA Bill is a mechanism for fighting wastage, arbitrariness and poorly coordinated spending in public expenditure management: The culture of unrestricted spending of unanticipated income will be curtailed. Investments will be based on sound, clear and beneficial economic/financial parameters.
7. Availability of a Pool of Savings or Back-up Funds for future generations: Because crude oil is a non-renewable resource, future generations of Nigerians will be provided for.
8. Availability of a Counter-Cyclical Economic Stabilization Fund: This will assist in smoothening budget variations in income over a period of time.
9. Availability of an Infrastructure Fund to provide intervention in critical areas of the Nigerian economy. The infrastructure deficit of Nigeria is a major challenge that requires massive investments of financial resources. This benefit will cut across different sectors due to the multidimensional nature of the likely interventions. The multiplier effect this will have on the economy is assured.
10. Last but not the least is the potential that the Nigerian Sovereign Investment Authority holds in terms of creating multiple streams of income as well as capital growth for the entire people of Nigeria.