THE Federal Government recently sent to the National Assembly a Bill for an Act to Establish the Nigerian Sovereign Investment Authority to Build a Savings Base for Future Generations, Enhance Development of the Infrastructure Sector in Nigeria, Assist Fiscal Stability in Certain Circumstances and for Related Matters. The planned agency, which is dubbed the Sovereign Wealth Fund (SWF), is essentially a rechristened Excess Crude Account (ECA) that will be vested with legal existence and be given rules to guide its management. The establishment of the fund was broached in 2005, but to avoid running foul of the constitutional provisions stipulating that accruals to the Federation Account be shared among its beneficiaries, there had been extensive consultations before the National Economic Council finally approved the Bill to be moved to the present stage of legislation.
One aspect of the proposed agency that attracts attention is its unwieldy governing council which will likely call forth an oversized bureaucracy. This is an accoutrement for dissipation of resources and valuable time rather than for effective execution of any desired objectives. A dedicated bureaucracy did not oversee the savings and withdrawals from the ECA which proceeded quite seamlessly. The rushed squandering of the large sums that once graced the ECA is attributable to the absence of guidelines for disbursing the funds.
Given the volatility of the price of crude oil and the attendant swings in government revenue, the compelling justification for the SWF is to create a revenue buffer that will allow annual budgets to be implemented at levels that are not markedly different from what is planned. Hence the core objective of the SWF relates to ensuring fiscal stability. Accruals to the SWF represent oil receipts in excess of the product of the budget benchmark oil price and oil production volume over a specific period. Depending on the direction of changes in price and quantity, the budget may also experience a shortfall of oil revenue receipts. Therefore, triggers for drawing down the SWF should be flexible so that, in the event of any revenue shortfall, previous savings may be accessed for the execution of ongoing and planned projects.
The national (state or local council) budget is ordinarily a yearly segment of a country’s well-thought-out development agenda that is encapsulated variously in a rolling plan, fixed medium term development plan or long term vision plan. To seek to lock away available funds in the SWF in order to “enhance development of the infrastructure sector in Nigeria” at a time the budget segment literally cries for additional resources to execute projects the country can ill afford to postpone is both an alibi for the gaping development failures in the sector down the years and an attempt to shift responsibility for reversing the trend to an undefined future.
When does the future begin? Had past budgets played their segmented developmental role in Nigeria’s development agenda of numerous names, the country would have long attained the status of a First World economy. That outcome is a much better legacy for posterity than to “build a savings base for future generations” who, as SWF envisages, will be expected to shoulder the development process when oil and gas shall be no more.
Considering that the huge oil revenues garnered since 1978 did not provide what the proposed agency is intended for, the SWF proponents should answer two questions: Why did past budgets fail in their developmental role? And why by implication must subsequent budgets to be financed with benchmark oil proceeds (only a small fraction of the proceeds will accrue to the SWF) follow suit?
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