Back in April, we learned the exciting news that Nigeria was actively looking into establishing a new and legal SWF that would replace the the much-maligned Excess Crude Account, which, despite it’s initial IMF backing, has been the source of considerable mismanagement and waste since its launch in 2003. Subsequently, in July, the plan for the new fund stalled, as the Governors (who enjoyed the benefits of the ECA) struck back; thereby illustrating the truism that slush funds tend to be popular among those with access to the slush. Nonetheless, the Governors were later convinced of the need to adopt a proper commitment mechanism at the national level for managing resource rents. And, while I initially complained that the “fast tracked” SWF was moving too slowly, it seems the wheels have in fact been in motion (which is probably due to the looming elections in January).
Indeed, in August we found out that the Nigerian SWF had received an earmark of $1 billion (which isn’t much, but it’s something). And today we learn that President Goodluck Jonathan has officially sent a bill to Parliament to create the fund:
“I have forwarded a bill to the National Assembly to create a national sovereign fund to ensure that we have the legal underpinning for national savings…The federal government, in concert with state governments, has already set aside the sum of $1 billion as seed money for the national sovereign wealth fund…”
So, I need to give credit where credit is due; if the National Assembly does what they’re supposed to, then Nigeria will have taken a big step in overcoming the resource curse. Nicely done.
That said, I feel obliged to offer a friendly warning: The simple act of setting up an SWF is not enough on its own to thwart corruption and mismanagement; the fund also has to have the necessary design and governance mechanisms to ensure that it succeeds where the ECA failed. And, in my view, getting this right is the hardest bit, as it requires integrating the fund into the budgeting process while also immunizing it from political interference. It’s tough to do in western democracies, so I’m pretty sure Nigeria will find this challenging.
So, that’s the next big thing we need to be watching for in Nigeria: how the fund is set up. And with technocrats like ex-Goldman Sachser Aganga in charge of much of this effort, I am cautiously optimistic…