Nigeria Struggling To Grow Sovereign Wealth Fund

Nigeria Struggling To Grow Sovereign Wealth Fund

Nigeria’s federal government wants to increase the capital of its $1 billion sovereign wealth fund this year but is struggling to do so with state governors opposing fund allocations before the 2015 elections, Bloomberg reports.

Nigeria, population about 170 million, depends on crude oil exports for about 80 percent of government revenue and 95 percent of export income, according to Bloomberg.

Africa’s top oil producer, Nigeria averaged less than 2 million barrels a day in 2013 — about 25 percent less that the 2.53 million barrels the government had predicted, according to data compiled by Bloomberg.

“We want to look at what we can do, however small, to ensure a steady streaming of income into the sovereign wealth fund,” said Nigerian Finance Minister Ngozi Okonjo-Iweala, 59, in an interview Sunday in the commercial capital, Lagos. She did not specify the amount of the desired increase.

“This is a very political year, so how we do it and what we do, we need to watch and see what is the best moment,” she said.

Nigerian President Goodluck Jonathan signed the Nigerian Sovereign Investment Authority into law in May 2011. The fund is managed by CEO Uche Orji, a former Goldman Sachs Group Inc., JPMorgan Chase & Co. and UBS AG banker.

The fund has started making investments, but is battling to grow from its initial capital. In 2013, Okonjo-Iweala said Nigeria was targeting $5 billion for the wealth fund in the “medium term,” Bloomberg reports.

Governors from Nigeria’s 36 states, including Lagos’ Babatunde Fashola, say the fund is unconstitutional because all oil revenue must go to the federation account and be distributed between state, local and federal governments.

Jonathan’s ruling Peoples Democratic Party is facing its biggest test since the end of military rule in 1999 after a series of defections to the main opposition party before the 2015 vote, according to Bloomberg.

Crude account

In addition to the Sovereign Wealth Fund, Okonjo-Iweala said she also wants to replenish Nigeria’s Excess Crude Account, which holds the savings the country makes when the oil price is above the benchmark estimated price in the budget. The account dwindled to $2.28 billion at the end of 2013 from $8.65 billion a year earlier, according to a Jan. 16 finance ministry statement sent to the U.S. House of Representatives Committee on Finance.

Okonjo-Iweala said in November the government had to draw down the savings account to compensate for oil theft by gangs in the Niger River delta that have caused crude production to miss budget estimates.

“A couple of hundred million dollars” was added to the account in December and nothing this month, Okonjo-Iweala said. “A lot will depend on what happens with the leakages and theft in the oil sector and how we’re able to close that up.”

Oil savings

Savings are also being undermined because the government-controlled oil company retained $10.8 billion in revenue, leaving Nigeria exposed to possible oil price shocks, central bank Gov. Lamido Sanusi said in an interview last week. The Nigerian National Petroleum Corp. said it spent the money on pipeline repairs, fuel subsidies, crude losses and reserve fuel.

Nigeria wants to plug a housing deficit of 17 million by creating a mortgage-finance company that the government says will mimic the U.S.’s Fannie Mae.

The Nigeria Mortgage Refinance Co. will sell $317 million of long maturity bonds within the next three to four months, with another $317 million planned in six-to-nine months, Okonjo-Iweala said.

Development finance

“The government has created a kind of yield curve and we hope that institutions like Pencom, our pension organization which has now some robust amount of assets, I think up to $15 billion, can invest in that,” Okonjo-Iweala said. “It will be a fit in terms of their profile.”

Nigeria wants to create a development finance institution this year similar to Germany’s KfW and Brazil’s BNDS to aid investments in long-term projects, the minister said.

Existing funding institutions, such as the Bank of Agriculture and Bank of Industry “that are not working well” will be partially privatized, restructured and strengthened, she said. The government has been in talks with Rabobank International, which has shown interest in acquiring one of the lenders, Okonjo-Iweala said.

“Without long term money in this country we cannot sustain the 7 percent growth,” said Okonjo-Iweala. “You can’t expect people to borrow short term, for three years, to invest in a 15-year endeavor and that’s what happening now and it’s very costly.”