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Sovereign Wealth Fund: State Governors want more clarity

By on August 23, 2011

Nigeria’s powerful state governors have sought more clarity over how the country’s planned debut sovereign wealth fund (SWF) would work because of concerns they will have less access to oil revenues.

The fund has been designed to help Africa’s biggest oil exporter to improve its management of often-squandered crude oil earnings and would replace Nigeria’s excess crude account (ECA), where oil revenues over a benchmark price are now saved.

The governors of the 36 states in Africa’s most populous nation are concerned that revenues placed in the SWF will tie up oil income and that it won’t reach state level. The central government is likely to manage the SWF and has said there will be stricter rules on accessing funds.

“The sovereign wealth fund was discussed and the governors did agree that there was need for a rethink,” Isa Yuguda, governor of northern Bauchi state, said following a meeting of the state heads at the presidential villa in Abuja on Monday when the new national economic council was inaugurated.

Yuguda said there would be more talks between the state and central government to address the concerns raised by the governors at Monday’s talks. No firm timetable has been published for the new fund to start operating.

Critics of the ECA say there was no clear legal basis on which to determine how the windfall oil savings in the account should be shared between the tiers of government — federal, state and local — leading to constant political wrangling.

The account contained more than $20 billion when late President Umaru Yar’Adua came to power in 2007 but by the end of last year it held less than $1 billion.

Yuguda said there needed to be checks that the SWF was constitutional but the fund could be accommodated if it had a positive impact on Nigeria and did not lead to lower tiers of government being short-changed.

Other governors said the planned implementation of a new law more than doubling the minimum wage meant the states needed more oil funds, not less.

CORRUPTION

Corruption is rife in Nigeria and oil savings have in the past created vast wealth for some politicians, while much-needed infrastructure is never built and the majority of people live on less than $2 a day.

President Goodluck Jonathan, sworn in for his first full term in May, can ill afford a political battle between layers of government after making pledges to boost economic growth, create jobs and improve woefully inadequate power supplies.

Jonathan said in his national economic council inauguration speech that he did not want rifts between the state and federal government aired in public.

“I plead with the governors that at the end of any of the governors forum meetings, if you feel there are issues that you feel that are grey, it is better you approach us so that we can sit down and look at it and discuss and agree on where to go.”

“I will plead that the governors should not rush to the media and make pronouncements … on the economy of the country.”

The NEC, which is chaired by Vice-President Namadi Sambo and includes all state governors, the central bank governor, finance minister and national planning minister, will meet once a month to discuss the economy.

This is the third economic team Jonathan has created in a week. Two were at a federal level, driven by former World Bank chief Ngozi Okonjo-Iweala who has taken up an expanded finance minister role, giving her broad economic powers.

These steps may concern state level politicians that more economic power is being pulled into central government.

Nigeria is one of only three OPEC member states not to have a sovereign wealth fund. The federal government has said the wealth fund will provide a firmer legal basis to ring-fence its oil savings.

Reuters