Sovereign Wealth Wahala - By Les Leba
The phrase, 'Sovereign Wealth Fund', SWF, may sound like 'big grammar' to the average layman, who, with little education, represents the critical mass of our population. It may not be enough to explain that SWF is similar to personal or family
savings because the majority of our poverty stricken citizens, who live on the proverbial $2 a day have never been blessed with surplus income to permit the luxury of savings for basic need of food for more than a day or two at any one time! If such a true representative of Nigeria's critical mass fortuitously (say miraculously) receives a huge cash windfall that surpasses his usual daily paltry income, for example, by a million times, the question is what would he do as a rational person, and at what point or under what circumstances would it be sensible to save any surplus?
Fortunately, poverty or any such deprivation does not mean foolishness or recklessness, as even a poor man can still make rational decisions, which are in consonance with the well-recognised human hierarchy of needs with regard to his welfare; in other words, if his additional income can provide for food for the foreseeable future, citizen X would look to secure safe and secure shelter, and arrange for his family to enjoy reasonable healthcare service and his children to be appropriately empowered in functional schools. Any leftover income after these needs could then be channeled into a business or alternatively saved to ensure long-term sustainability of his family's welfare.
Citizen X's choice of either business or savings would be determined, of course, by the expected rate of return from entrepreneurship against that of saving the surplus with a third party! If, for example, his savings yield interest of 5% per annum while the same funds ploughed into his business yields, say, 10%, it would obviously be in Citizen X's better interest to shun the savings option. However, in spite of the smaller return from savings, Citizen X may still resolve to play safe and decide to save some of his surplus income after meeting his basic needs, while he ploughs the balance into his own business.
If Citizen X adopts such diversification of investment portfolio, but finds that in normal course of business, he requires additional injection of funds to consolidate or expand his business, he could approach the banks or other investors to borrow funds at prevailing rates. However, if the same banks or investors with whom Citizen X's savings attract only 5% yield turn round to offer to lend to him at 10%, it would not require the advice of a finance expert for Citizen X to recognise the wisdom in withdrawing his savings to plough back same into his business as any alternative option would be similar to borrowing back his own funds at double the rate of return on his savings!
As it is with Citizen X, so also it is for a nation; in place of savings, substitute the phrase 'Sovereign Wealth Fund' in the above personal illustration and the considerations and options would remain the same. Sovereign Wealth Fund as savings is a virtue, but it borders on recklessness and irresponsibility, if a nation embarks on savings at a time that increasing number of children cannot afford to go to good schools, and the infrastructures and quality of teaching remain in decay; then, of course, such a nation will be sowing a wind, and kidnappings, cultism, armed robbery, terrorism and other such vices will be embraced by jobless youths; and possibility of future succour will become dimmed; meanwhile, our SW savings may have been deployed to the benefit of other third parties for pittance returns as our yields.
Furthermore, we endure poor health facilities, dilapidated road and rail transportation systems, grossly inadequate mass housing and massive shortfalls in power adequacy, while we are encouraged to save for a rainy day (not from funds which are surplus to our needs) with the same class of international finance managers, who also double as mediators of loans, which we are goaded to accept to mitigate our social and infrastructural challenges! The Coordinating Minister for Finance is yet to reveal the expected rate of return for the $1bn so-called seed money set aside to establish Nigeria's SWF, which may yield less than 4%! This contrasts with the almost double cost of 7% for the $500m Eurobond, which former Finance Minister, Olusegun Aganga, raised primarily to set a benchmark for other Nigerian borrowings!
The question is, what stops these agencies, who manage our savings and pay less than 4% return after deduction of management fees, from turning round and lending back our own money to us at 7% so we can fix our critical infrastructural deficits? Ultimately, we will end up paying 3% or more as interest to the same agencies who are our SWF managers for letting us use our money; this seems like a case of the more you look, the less you see!
So, the question as to the rationale for a SWF is really not difficult to answer; YES! it could be a handy egg nest for unanticipated economic shocks and may also serve to attract investment and provide for future generation, but this will only be so if the SWF is derived from surplus revenue; we must distinguish here between revenue that is surplus above our needs and surplus over budget! We could have surplus revenue above budget benchmarks, as was the case in most of the last 12 years or so, when crude prices remained generally above $70/barrel; but these surpluses could never fully cover our funding requirement for mass housing; improved educational and health infrastructure and provision of adequate power and security for our people. Admittedly, substantial portions of budget surplus were mismanaged and looted from the illegally constituted excess crude account; the consolidated sum nonetheless, may have been inadequate for optimal provision for even our energy needs; that is, if we believe Prof Barth NNaji, the Energy Minister's notice that $50bn may not fully meet the funds needed to provide adequate power! Thus, if vision 20:2020 is our goal, we would have little option than to borrow at rates which exceed 7% in the current international capital market. Indeed, the picture is worse on the domestic front, where the government is now borrowing at over 15% while its yield on its own lendings are just a fraction of this rate!
So, once again, it should be YES for sovereign funds, but, a big NO! if we have to borrow at higher cost for our needs than the yield on our SWF! The rainy day is here and if we can fix our roofs and heal the pain in the land with our own funds, why borrow at shylock rates!
We note, however, that the current grouse between the State Governors and Federal Executive do not relate to the merits and demerits of a SWF. The issue at stake is whether or not the concept of SWF is antithetical to the spirit of fiscal federalism which should have formed the bedrock of our current constitution. The confrontation is unusual because advocacy on such issues would normally be spearheaded by an opposition party in government, but surprisingly, the current Chairman of the informal, but coercive governors forum is, himself, a dyed in the wool PDP stalwart! An independent observer may be led to commend the Governors for their advocacy for adoption of fiscal federalism and thereby properly define the limits of our democratic practice. However, it is also clear that the prevailing concentration of power at the centre, and sharing of funds milked from the Niger Delta to other states on the basis of population, rather than payment of dues from the states on the basis of population, the unusual constitutional regulation of the power sector such that states cannot seek to independently provide for their power needs without infringing constitutional limitations, the CBN's capture of export dollar revenue and monopoly of the foreign exchange market to the detriment of the economy, etc, etc; these are all infringements on fiscal federalism in a democracy!!
Thus, the Governors' position on SWF may be seen by some critics as crocodile tears for fiscal federalism, while their hidden agenda and grouse is to increase the value of their monthly naira allocations so that they have more money to spend, whether judiciously for their citizens' benefit or not!! The governors' approach of the supreme court on SWF is probably self-serving in view of their profligate antecedents, but then, the Federal Executive, Legislature and MDAs cannot also be exonerated from corruption and profligacy, especially as the lions' share of allocations go to the federal government, yet the poor state of our roads, hospitals, schools, power supply, etc, etc, all over the country are testimonies that the federal government may also not be trusted to ultimately use the SWF judiciously; after all, the $30bn excess crude account and the $18bn paid to the Paris/London Clubs and over $15bn sunk into the power sector were all unilateral federal government initiatives, and regrettably, the social welfare of Nigerians have still suffered inexplicably without let up.
What is surprising, however, is that in spite of the Governors' forum dissent and pending litigation against the continuance of the illegal 'excess crude account' since 2008, they acquiesced on this constitutional violation for over four years, while they 'chopped and cleaned mouths' (apologies to the weird Afro beat legend) whenever the 'excess crude' dollar balance was substituted with naira by the CBN and shared by the CBN! They even supported the Act for SWF, which was passed in May this year. In disciplined economies, constitutional violations are perceived as equally serious if not more serious than simple misdemeanours and they generally attract strict punishment, but so far, no one has suffered for these constitutional desecrations.
It is rather unfortunate that public servants often make it difficult to believe government. Last week, Dr. Iweala addressed the media and confirmed that the Governors had been carried along on the issue of the SWF; regrettably, less than a week later, the Governors revived their case against any deductions in the name of SWF from the federation account.
In spite of the obvious lacuna in the negotiations between the federal government and the Governors, Okonjo Iweala raised the disagreement to a confrontational level by unilaterally going ahead to announce the establishment of a SWF with $1bn from national treasury; what was the hurry?
As for where we go from here, well, the answer is blowing in the wind!
SAVE THE NAIRA, SAVE NIGERIANS!