29 August 2012, Newswire, Abuja – Nigeria moved closer on Tuesday to joining most of its OPEC partners in steering oil revenues into longer-term investment, announcing a top management team for its new sovereign wealth fund.
Finance Minister Ngozi Okonjo-Iweala said the fund would start with a cash hoard of around $1 billion, Reuters reported. The top team will come from First Bank and UBS.
The West African oil producer is one of only three OPEC member states that do not have an SWF, and the new fund is being keenly watched by global markets and investors in Africa’s second biggest economy, the news wire said.
The government hopes the fund will provide a firmer legal basis to ringfence Nigeria’s savings from competing demands so it can better save when oil prices are high.
Sovereign wealth funds are essentially government-run investment portfolios that buy into anything from mainstream assets such as stocks and bonds to direct foreign investment.
Nigeria, Africa’s top energy producer, pumps over 2 million barrels of oil a day but has frittered much of it away over the years on government wages, other recurrent spending and corruption, ills that Okonjo-Iweala quit her World Bank job to come back and tackle.
Auditor and consultancy firm KPMG helped hire the SWF board.
Alhaji Mahey Rasheed, a member of the board of First Bank, was chosen as the chairman of the fund team with UBS executive and former JP Morgan head Uche Orji chosen as the managing director and chief executive officer.
Okonjo-Iweala said she hoped by the end of the year the team would lay out plans for the $1 billion but did not say when investments would start.
The SWF has three main aims: saving money for future generations, funding infrastructure and defending the economy against commodity price shocks.
“I think the sovereign wealth fund will make Nigeria more attractive for investors,” Okonjo-Iweala told reporters.
She said she hoped more money would be paid in later, adding that 20% of the fund would go to each of its three targets and the board would decide how to invest the other 40%.
President Goodluck Jonathan signed a bill into law in May last year authorising the SWF, but powerful state governors originally blocked the fund, saying it was unconstitutional.
They later agreed to it going ahead, albeit with an initial limit of $1 billion, a fraction of the $7 billion savings that are in Nigeria’s Excess Crude Account (ECA).
Many state governors fear the SWF will mean less money for them to spend than the current ECA system for saving oil cash.
“The battle was long but I think the country stands to gain and I think it was worth it,” Okonjo-Iweala said on Tuesday.
The SWF is meant to replace the ECA eventually but Okonjo-Iweala told Reuters last week the two will run side-by-side until people get comfortable with the SWF.
Critics say the ECA is opaque and can be too easily used.
The account contained $20 billion in 2007 but fell to $3 billion after a presidential election last year, despite five years of high oil prices. It has since risen to $7 billion.