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For quite some time now, especially during the time when late president Umaru Yar’Adua was alive, consideration for creation of a Sovereign Wealth Fund (SWF) for Nigeria was giving exploratory attention within government public policy and national economic management cycles. The issue was rekindled when the current Minister of Finance, Olusegun Aganga was brought into the cabinet, following the death of President Yar’Adua on May 09, 2010. For example, a Technical Committee was established by Aganga to workout the modalities for the creation of the Fund.
That Committee had since completed its assignment and submitted its report to the appropriate government authority. The Federal Executive Council (FEC), in one of its weekly meetings, approved the Committee’s recommendations. This paved the way for President Goodluck Jonathan to present the proposition to the National Economic Council (NEC) – a Constitutional body comprising the Vice President of Nigeria as Chairman, the 36 States Governors and the Central Bank of Nigeria (CBN) Governor, amongst others, for their consideration and endorsement.
The State Governors, who, in addition to the Federal Government and the 774 Local Government Councils nationwide, are the joint owners of the Consolidated Revenue Account as enshrined in the 1999 Constitution of the Federal Republic of Nigeria embraced and endorsed the proposal, albeit, reluctantly. This is because they were not initially consulted regarding the issue.
However, since then, nothing has been done to move the idea to fruition to date, until it resurfaced again, this time in President Jonathan’s Declaration Speech for the contest of 2011 Presidential election delivered on Saturday, September 18, 2010 at the Eagle Square, Abuja.
But before I go any further with my analysis of the above subject, I would veer a little, in order to provide a brief historical context into the subject thus far. Thus, the issue of Fiscal Federalism has always been a bond of contention since Nigeria attained its political independence from imperial Britain some fifty years ago; on October 1, 1960. Since then, and until now, the nation and its political (and even military) leaders have been muddling through it without full satisfaction by the various contending stakeholders from across the geo-political, ethno-linguistic and religious divides. Hence, there is no doubt that it is a very hot political economy and constitutional issue and must be addressed and tackled within that framework.
Ironically however, one of the first attempt to deviate from the existing fiscal federalism arrangement that governs the way and manner revenues accruing to the nation’s Consolidated Revenue Account was the creation of the so-called Dedicated Accounts; earmarked for funding some specific national infrastructural development projects by the then military government of General Ibrahim Badamasi Babangida (IBB) in the late 1980s and into the early 1990s.
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This was done at the behest of the World Bank (WB) and the International Monetary Fund (IMF) during the first US-led Gulf of Arabia War, when Nigeria, benefitted substantially from supernormal profits from the export of crude oil due to the war in the Arabian Gulf then. For example, certain amounts of the federally collectable revenues accruing to the nation’s Consolidated Revenue Account were diverted and lodged into these Dedicated Accounts. These Accounts were domiciled in the Central Bank of Nigeria (CBN) and under the control of the then military Presidency.
The diverted funds were earmarked for financing of provision of critical physical infrastructures and development projects such as the Iron and Steel plants and associated Standard-gauge rail lines, National Fertilizer and Sugar companies, expansion of old and construction of new oil refineries and associated pipelines network, building of a new federal capital territory and a new capital city (Abuja) therein, completion of the third mainland bridge in Lagos, and the establishment of the Oil Mineral Development Commission (OMPADEC), amongst others.
The Dedicated Accounts were alleged to be drain pipes as there was no proper check and balance as to ensure transparency, accountability and efficiency of the utilization of the huge amounts put into them. The existence of these slush funds became very controversial. For example, paradoxically, it was then that the nation began to miss its deadlines for paying its foreign debts service obligations and was also in arrears, most of the times when it comes to paying its Cash-calls obligations to its joint venture international oil companies (IOCs) partners operating in Nigeria’s upstream oil and gas sector.
However, with change in government in 1993, the military regime under the leadership of General Sani Abacha instituted an investigation into the affairs of these dedicated accounts, which were ordered to be closed by the Abacha regime. The investigation was done by Pious Okigbo. Okigbo’s final report submitted to then military regime of Abacha was not made public up to the time he died in office on June 8, 1998.
The report remained a mystery, and is still very topically controversial and is currently under litigation; instigated by some anti-IBB groups and some politically concerned civil society organizations. Paradoxically however, these controversial Dedicated Accounts metamorphosed into what became known as Excess Crude Oil Account (ECOA) under the civilian regime of Olusegun Obasanjo (1999-2007). Again, the creation of ECOA was also an infraction or violation of the 1999 Constitution of the Federal Republic of Nigeria.
Nevertheless, Obasanjo operated the ECOA in spite of the legal and constitutional implications surrounding it. Coincidently, this happened during the Second US-led Gulf of Arabia War against President Saddam Hussein’s Iraqi government and the Taliban-led government in Afghanistan.
Also, the ECOA was created at the behest of the World Bank and the IMF as a precondition for Nigeria’s exit from the club of highly indebted developing nations. During this time (i.e. 2002-2007), Nigeria realized over $250billion from exports of crude oil. Substantial fractions of crude oil revenues accruing to Nigeria that is above a preset annual budget benchmarks, is channelled into the ECOA and kept as a stabilization fund in order to mitigate world crude oil market price volatility, amongst other set economic management objectives.
Nonetheless, the existence, operation and management of the ECOA are as controversial as its predecessor Dedicated Accounts mentioned above. President Jonathan has promised to experiment with SWF as a better option to the ECOA. I would examine the SWF model in my next week’s contribution to this column.
