Saving for a rainy day: the Nigerian government has finally followed the example of other members of OPEC by launching a sovereign wealth fund (SWF) to encourage savings from crude oil earnings, despite stiff opposition from the state governors. Frederick Mordi looks at the issues involved.

Author:Mordi, Frederick
Position:Nigeria
 
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In his timeless classic, The Richest Man in Babylon, George S. Clason stresses the need to set aside a part of one's earnings to secure one's future. This time-honoured law applies not only to individuals, but also to nations that desire to create wealth and prosperity for their citizens.

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The Nigerian Government must have had this in mind when it launched the Sovereign Wealth Fund (SWF) with Nisobn ($1bn) seed capital in October. The ultimate beneficiaries of the Fund, according to the government, are the ordinary Nigerians, who have yet to feel the impact of the billions of dollars that have accrued to the country, 54 years after oil was first discovered in Oloibiri, a sleepy community in the Niger Delta region.

Nigeria, Africa's largest oil producer, and member of the Organisation of Petroleum Exporting Countries (OPEC), currently exports about 2.2m barrels of crude oil a day. But the accruing revenues are often frittered away by the government. President Goodluck Jonathan's government hopes to break with tradition by improving on savings of the mismanaged crude oil revenues, through the SWF.

A SWF, a government-owned investment fund, is usually set up by countries with mono-cultural product, such as crude oil, as their main revenue-earner. Nigeria is an example of such a country, relying predominantly on crude oil as major source of revenue.

The Nigerian SWF, expected to be funded and owned by the three tiers of government (federal, state and local) in the country, will replace the Excess Crude Account (ECA), into which Nigeria saves oil proceeds above a benchmark price set each year in the budget.

The government had transferred an initial $1bn from the ECA, which now contains $5bn, to the SWF, to kick-start this all-important process of encouraging savings of crude oil revenues. It is expected that with time, the remaining fund in the ECA would be transferred to the SWF.

Jonathan had earlier, in May, signed the National Sovereign Investment Authority Bill into law. This gave legal backing to the implementation of the SWF. The government proposes to fund the SWF monthly from excess oil revenues from the Federation Account.

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No time to waste

Unveiling the SWF in Abuja, the nation's capital in October, former World Bank chief and Coordinating Minister for the Economy and Minister of Finance, Dr Ngozi Okonjo-Iweala said: "We are proceeding with the implementation of this...

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