News Column

Savouring Our Commonwealth

July 21, 2014

Last week, Nigeria added another feather to her cap in international investment drive when the country reportedly moved to the second position on the rating of sovereign wealth funds in the world.

This was sequel to the improved rating of the Nigeria Sovereign Investment Authority (NSIA) as a sovereign wealth fund by the Linaburg-Maduell transparency index administered by the Sovereign Wealth Institute.

In the official statement announcing the second quarter 2014 ratings, the Institute singled out the NSIA for special mention, stating that the NSIA has been upgraded to nine points out of a possible 10 from a score of four in the previous rankings.

This rating translates into a jump from a position of joint 33rd to joint second; the only African sovereign wealth Fund so ranked.

With the latest rankings, NSIA is in credible company alongside sovereign wealth funds from the USA, France, South Korea, Brazil and Malaysia.

More significantly, the improved transparency ranking validates NSIA's commitment and adherence to the highest prescriptions of the Santiago Principles with respect to corporate governance, investment strategy, disclosures and SWF best practices.

Early this year, Nigeria's strategies and efforts towards achieving the objectives of President Jonathan's Transformation Agenda, received international recognition. This time, the recognition was the EMEA Finance 2013 best Sovereign Bond in Africa for the USD1 billion Eurobonds issued by Nigeria in July 2013.

The award was in recognition of the high level of subscription recorded by the Offer and the fact that the Eurobond was issued during a period of market uncertainty.

Nigeria'sUSD1 billion Eurobond was chosen by EMEA Finance for this special award out of a total of five sovereign Eurobonds issued by African countries in 2013.

The Nigerian Sovereign Wealth Fund took off two years ago after the Act that established the NSIA received presidential assent in May, 2011.

But then, there was stiff opposition to the establishment of the Fund spearheaded by state governors who initially blocked the proposal, leading to eight months of negotiation.

The governors' grouse arose from the fear that they would lose the opportunity of benefiting from the funds whenever it was withdrawn from the Excess Crude Oil account.

However, the Federal government later seeded the SWF with $1 billion (N150 billion) which was later increased to $1.5 billion from the Excess Crude Oil account. The amount is still a far cry from the size of other existing funds in the world under management.

Although, the Kuwaiti Investment Authority is credited with operating the first SWF from oil revenues in 1953, Abu Dhabi Investment Authority is the largest fund with total assets reaching $627 billion, followed by Norway Government Pension Global Fund with assets of $512 billion. Russia'sNational Welfare Fund is relatively new but has moved up quickly with assets of $143 billion.

Nearer home, Angola, Africa's second-largest oil producer, has launched a $5 billion sovereign wealth fund in an attempt to diversify its economy.

So far, Nigeria through its Sovereign Wealth Fund (SWF) has invested $200 million in the bond market of the United States, with financial giants such as UBS, Credit Suisse and Goldman Sachs as managers of the $200 million bond investment.

Government's decision to make the contributors, who represent Federal, state and local governments, members of the council of the NSIA should be seen as a positive step just as the presentation of certificates to the contributors should be commended as this would assuage the fears of the governors who were wary of being shortchanged in the project.

The need to further shore up the resources of the Fund hardly requires any emphasis against the backdrop of enormous responsibility it has in channeling resources for development of infrastructure and its other critical roles in the economy.

Even so, there is a fly in the ointment in channeling SWF investments. This is so because many SWFs have burnt their fingers in the course of investments as did Norway which SWF lost US$15 billion when stock prices fell in Europe. For the Libyan SWF, it is still sulking over the loss of US$5 billion in Africa portfolio, not long ago.

While some countries such as the Gulf States have employed the instrumentality of their sovereign wealth funds to develop their economies, Saudi Arabia and some others remain undeveloped poverty-stricken nations, in spite of their oil wealth. The rulers in these countries, instead of developing their economies prefer to bail out Western countries and buy U.S treasure bonds.

Nigeria should toe the line of China which Investment Corporation (the version of our NSIA) has engaged in building influence for the government by targeting significant stakes in companies that have influence in western governments, such as airline companies and has directed investments to others that have heavily invested in China. By so doing, the investments would help the government to influence the policies of multinational companies and to protect China's interests in the international arena.

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Source: AllAfrica

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