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Experts Identify Pitfalls in the Sovereign Wealth Fund

By on March 12, 2012

The Institute for Applied Economics (AIAE) has identified three pitfalls that are inimical to the successful implementation of the sovereign wealth fund (SWF)
The Executive Director (AIAE), Eric Eboh, at a seminar on SWF in Abuja said the debate about the SWF has shifted from its constitutional correctness to the imperatives for sound management and sustainable governance.
He noted that the initial resistance and reluctance to the idea by sub-national layers of government have given way to discussions about implementation and governance.
“While the idea of commonwealth for the present and future generations and the notions of fiscal consolidation are universal in nature, there remain some critical country-specific risks and concern rooted in the Nigerian context”, he added.
Eboh said main concerns relate to political sustainability, implementation effectiveness and economic impacts given the poor fiscal governance and weak budget and public expenditure management across the three layers of government.
The Institute boss said the seminar would provide a critical avenue to arrest these concerns and propose measure to mitigate them, from an evidence-based objectively verifiable perspective.
Corroborating Eboh’s claim, another expert, Ohuche F.K, a senior research fellow of AIAE, noted that there was no representation of local government areas in the governing council; yet in act, local governments are required to contribute a percentage of their federally collected revenue-taxation without representation
According to him the predominance of the 36 governors in the governing council can skew decisions that may not be favourable to fiscal consolidation (all other members are 19).
He pointed out that the bureaucratic nature of the operation of the governing council, the board and management can overlap and undermine the quick decisions process required of an investment institution such as the NSIA to respond to the dynamics of global investment environment.
He noted the possible role conflict between the governing council sub-committee formed to assist the council in discharge of its duties with authority.
On sustainability Ohuche said, “where should SWF investment go?’ and what happens to the fund if oil price crashes below budget benchmarks and remain there?”