02 September 2017, Sweetcrude, Lagos — Nigeria’s per capita Sovereign Wealth Funds, SWF, saving is now $8.
According to figures obtained from the Nigerian Extractive Industries Transparency Initiative, NEITI’s 2017 ‘The Case for a robust oil savings fund for Nigeria’, the country’s $8 per capita SWF saving is the “worst” among the 7 countries- Norway, Chile, Angola, Botswana, Russia, Kuwait and Nigeria, reviewed.
Sovereign Wealth Funds, SWFs, have become an important tool used by resource-rich countries to address the challenge of depleting mineral resources. Although Sovereign Wealth Funds are not exclusive to minerals exporting countries, they are largely associated with earnings from mineral resources.
The effectiveness of a Sovereign Wealth Fund is also measured against a country’s population in the way in which the fund is designed to cater for future generations.
Section 31 of Nigeria’s NSIA Act (2011) for instance, stipulates that the optimal size of the Future Generations Fund and the Infrastructure Fund should be reviewed periodically as dictated by “demographics and growth projections”.
However, Nigeria’s indices fall considerably behind the other countries in its capacity to provide for future generations, statistics showed.
From the ratio used by NEITI for the calculation which varied from 3,720% to 6.2%, showed that Angola has a per capita SWF of $178, followed by Russia with a per capita SWF of $627.
Next is Chile’s $1,330 and then Botswana’s with per capita savings of $14,400.
Kuwait and Norway led the pack, having saved $148,000 and $185,000 for every one of their citizens respectively.
However, Nigeria’s per capita SWF saving is just $8.
Out of these case studies, the report presented Russia as a useful case for analysis given its demographic and political similarities with Nigeria, and given the size of its Sovereign Wealth Fund relative to its oil and gas resources.
In 2003, about the time both countries began making significant savings from oil revenue, Russia’s population was greater than Nigeria’s by about 12 million.
Again, Russia, like Nigeria, was heavily indebted to the Paris Club.
However three years after, Russia started saving in the first Oil Stabilisation Fund, using part of the savings to offset its entire $22 billion indebtedness to the Paris Club, about the same time that Nigeria paid $12 billion to its creditors to get a debt reprieve of $18 billion.
“A recent review of Russia’s Reserve Fund (RF) and the National Wealth Fund, NWF identified several governance issues with withdrawals from the funds. Russia has no doubt its fair share of challenges with operating its fund in a federal system of government, where there have been “intense domestic pressure” for the government to spend the savings in the SWF. Still, Russia’s $89.9 billion SWF is about sixty times the size of Nigeria’s SWF. Russia’s oil production may be five times that of Nigeria, but its annual budget expenditure is more than ten times Nigeria’s”.
The report said like Russia, Nigeria has faced challenges of saving revenues in a federal structure, however, saying that the two countries are by no means the only ones with this experience.
“At least eleven countries on the list of the Sovereign Wealth Institute’s SWF ranking are federal states. All but one of these countries are constitutional democracies, dispelling the notion that only autocracies or monarchies can successfully maintain a Sovereign Wealth Fund”.
Among these countries, only war-torn Iraq and crisis-hit Venezuela perform worse than Nigeria, but not by much, the report said.
Yegor Gaidar, Russia’s former prime minister, observed that the country learnt its lessons from its experience following the crash in oil prices in 1985.
He traced the collapse of the Soviet Union partly to the economic crises brought on by the sheer size of the price crash.
According to the former premier’s conclusion, contemporary Russia has learnt useful lessons and has become shrewder with more prudent fiscal management and the accumulation of significant oil savings.
Recent 2016 International Monetary Fund, IMF reports provided an insight into the management of oil revenue by both countries.
According to the report, Russia’s low debt and moderate financing needs, coupled with NWF liquid assets alone, equivalent to 5% of Gross Domestic Product, GDP, was more than sufficient to finance its deficit.
By contrast, Nigeria’s fiscal deficit was worsened by higher than budgeted (mostly recurrent) spending, even though “revenue underperformed by 50%”, the report said.
This showed that Russia had tended to maintain a more modest expectation of oil price levels than Nigeria.
In 2005, Russia’s spending plans was based on predicted oil price of $20/barrel.
The same year, Nigeria planned for a $30 oil price.
The following year, Russia’s projected barrel price was $27 while Nigeria’s was $35.
This year, Russia expects average oil prices at $40 while Nigeria’s parliament approved benchmark of $44.5.
This, according to NEITI, showed that while other countries have adopted a more pragmatic approach to volatility, Nigeria has largely been driven by the “illusion of continuous oil windfall”.
“The country can hardly achieve meaningful savings given this mindset”, NEITI said.