Suffering wealth and sovereign wealth

One of the most exciting things I have ever done, and I mean it, was my study of oil-producing countries in 2008. I set out on a study of five countries: Norway, Venezuela, Indonesia, Saudi Arabia and United Arab Emirates. On a comparative basis with Nigeria, I looked at their policies and practices: local content, product pricing, revenue sharing between national and sub-national governments, “resource control” and management of “excess revenue”.

The research took a lot of energy out of me, but I was better off at the end of the gruelling field work which took me to several countries. It taught me new things and reinforced my beliefs about how a country should manage its resource wealth. One of the reinforced beliefs is the need for a Sovereign Wealth Fund (SWF). At the time my report was published in THISDAY in March 2009, Nigeria was experiencing what I called “crude crunch” ─ oil prices had crashed from an all-time-high $147 a barrel to just a third of that, making a mess of the national budget.

The Excess Crude Account (ECA), which was set up by former President Olusegun Obasanjo under the inspiration of Dr. Ngozi Okonjo-Iweala in 2004, was the saving grace. Nigeria would have lapsed into a catastrophic economic downturn. Yet, when Obasanjo set up ECA, governors kicked against it, describing it as unconstitutional. All money must be shared, they said. If Obasanjo had caved in, there would have been nothing to fall back on in 2009 when the crunch set in. We still make use of it till today. So much for constitionalism.

ECA is, of course, not the same thing as SWF. ECA simply saves the difference between the budgeted and the actual prices of crude oil. It is a stabilisation fund, summoned when it is needed, especially by the governors who continue to wave the constitution in our face anything they crave raw cash. SWF, on the other hand, is primarily an investment. The first known SWF was the Kuwaiti Investment Board set up in 1953 to give that country some flexible income streams rather than a sole dependence on  oil money. Today, over 60 countries are known to have set up SWFs for strategic economic and political interests.

In my most recent article, I listed the SWF as an achievement of the Jonathan administration. The Nigerian version was conceived by Dr. Olusegun Aganga in 2010 when he was Minister of Finance. I was glad Okonjo-Iweala pursued it to a logical end when she returned as Minister of Finance in 2011. One reader, angry that I listed SWF as something to celebrate, asked the all-important question: how can we be saving money when we have infrastructural deficit? Why don’t we spend the money to build infrastructure instead? He illustrated his opinion with a very good analogy: how can you be saying you have money in your bank account when you can’t pay your children’s school fees?

Unknown to the reader, he was making a case for SWF. While ECA is like having money sitting pretty in your bank account, SWF is a way of investing your money so that you can earn returns for life and continue to pay your children’s school fees, as it were! The SWF is even much better when you consider that the Nigerian version has three components ─ Future Generation Fund, Nigeria Infrastructure Fund and Stabilisation Fund ─ managed by the Nigeria Sovereign Investment Authority. You save part for the future, invest part in building infrastructure and keep the rest for fiscal stabilisation ─ to play the role of ECA.

What’s more? SWF is being used an instrument of diplomacy by many smart countries. Ecobank is the leading independent regional banking group in West and Central Africa, with operations in 36 countries. You know its biggest shareholder? Public Investment Corporation. It is, in some way, the South African version of SWF. PIC currently manages funds in excess of $150 billion. South Africa has been using its weight in Ecobank to push decisions its way, seeking to relegate Nigeria to the background in the boardroom. Gulf countries have invested in several public assets in European countries and America ─ and have become increasingly relevant in the economic and diplomatic calculations of the West.

Singapore, one country we drool over, has two SWFs: Temasek Holdings and Government of Singapore Investment Corporation. In a 2013 essay entitled “Sovereign Wealth Funds as Tools of National Strategy: Singapore’s Approach”, Devadas Krishnadas outlined how Singapore has used SWFs to further its political, military, diplomatic and economic interests globally. One interesting aspect, he pointed out, is that Singapore has been consistently voted the best country to do business largely because of its incomes from SWFs. This has allowed the country to charge ridiculously low rates for personal income tax at 7%, corporate tax at 7% and VAT at 7%. That is strategic thinking.

I am always amazed when Nigerians argue against savings and investment. As a kid, my grandma taught me to save for the future. She gave me a piggy bank. My pastor has consistently taught me not to spend all my income. If you earn even N10, try to save or invest 10k, he says. Nigerians like to drool over Ghana a lot. Ghana that discovered crude oil only recently has set up its own SWF called Ghana Petroleum Funds. Countries that are poorer than Nigeria have. Countries that are richer than Nigeria have. The less developed and the developed countries have. We have to build infrastructure, unquestionably, but modern economic practices mean we can even build bridges and roads without spending a kobo! It is called PPP globally.

I agree that the constitution does not envisage a situation where we would need to save. The framers of the constitution say all federally collected revenue must go into the consolidated federation account and thereafter shared by the three tiers of government. This has provided the basis for people to argue that savings and investments are unconstitutional, even when common sense and global practices show that there is an economic logic behind it. The compromise we could reach, to satisfy the desires of those who say there should be no federal savings, is that each state should save and invest on its own. Governor Rotimi Amaechi of Rivers has done very well in that regards.

My conclusion: SWF does not hurt. It can serve economic, political and diplomatic interests. The benefits will not be that obvious today. When Kuwait set up its fund in 1953, it could never have imagined that it would be worth $410 billion today. Neither did Norway, which set up the Government Pension Fund in 1990 and it is today worth $893 billion. Some food for thought, that.

AND FOUR OTHER THINGS…

MUTINY MESS

I’m happy for our military over the recent inroads against Boko Haram. They badly needed some relief. When the insurgents headed for Mubi, the hometown of the Chief of Defence Staff, Air Chief Marshall Alex Badeh, I suspected something would give. Imagine Shekau doing a video from Badeh’s country home. That would be too much. However, I don’t think the 12 soldiers found guilty of mutiny should be executed. I think their action against their GOC inevitably drew attention to the Borno situation and, in the end, helped boost the anti-terror war. Death sentence would be too harsh. Mercy!

“ABUBAKAR SHEKAU”

Boko Haram is like the hydra-headed monster: cut one head off and another rises. Its founder, Mohammed Yusuf, was killed in 2009 apparently with the belief that it would mark the end of the sect. It, instead, marked the beginning. The military said his successor, Abubakar Shekau, had been killed, but another Shekau came along and things got worse. Now that the “impostor” Bashir Mohammed (or Isa Damsaka, Bashir Konduga, Abacha Abdullahi Geidam ─ these guys answer a million names) has been killed, it may not be time for us to sleep and snore yet. “Shekau” has died before. Remember?

PAYING TO SERVE?

You must have heard that NYSC is asking prospective corps members to pay N4000 before they can get their call-up letters. I was very angry when I heard the news. But nobody ever told me that they were given two options: go to their alma mater to pick up the letter for free (as they used to do) or enjoy “executive service” by downloading the letter and registering online for a fee ─ before walking to the orientation camp like a king. I’m not sure NYSC made the options very clear to the public, but I don’t think paying to enjoy premium service was invented in Nigeria. Choices.

THE SYNAGOGUE

The tragedy at the guest house of the Synagogue Church of All Nations, killing over 100 persons, has once again raised the issue of building standards in Nigeria. Buildings don’t just collapse. Something went terribly wrong somewhere. It could be weak foundation, inadequacy or poor mix of materials (cement, iron roads, stones, etc), poor engineering design, poor supervision and, quite commonly, poor regulation. To get building approvals in Lagos State, you pay through your nose. Government officials visit the site all the time to “supervise” but most often ask: “Oga, wetin you chop remain?” Without proper regulation, things will get worse. Indisputable.