THE Jonathan administration has constituted the board and top management of the Nigerian Sovereign Investment Authority (NSIA) preparatory to their inauguration in October. However, some states have called into question the constitutionality of the NSIA Act that was enacted in May 2011 and which provided that the authority be funded with amounts to be deducted from oil revenues accruing to the Federation Account (FA). They have approached the Supreme Court for necessary ruling. Subsequent attempts by the administration to get the states to drop their opposition appear to have failed. In the circumstance, plans to formally launch the NSIA should wait. The NSIA funding as legislated does not deserve to be retained even if only one entitled FA beneficiary disapproves of it. Democracy should neither pander to the dictates of strong and devious men through out-of-court negotiations over constitutional matters nor acquiesce to preemptive acts of any federal administration. President Goodluck Jonathan should therefore await the relevant Supreme Court pronouncement before flagging off the NSIA.The intended source of NSIA funds is the so-called excess crude account (ECA). Having arisen from arbitrarily set oil production and price benchmarks, the ECA is a misnomer because present to medium term projected oil earnings are clearly inadequate for pressing socio-economic development needs. Moreover, official justification of the ECA on account of the perennial excess liquidity in the system is baseless. The liquidity surfeit is caused not by excessive oil earnings but by willfully faulty fiscal and monetary practices that stem from the non-adoption of international best practice in infusing the oil earnings productively into the economy. Curiously, while the ECA has been operated since 2004, the absolute poverty level climbed from 54.0 per cent in 2006 to 69.8 per cent in 2010 just as the official unemployment rate currently stands at over 23.6 per cent.Against that backdrop should be viewed the four NSIA segments. Firstly, the Future Generations Fund (FGF), which makes up 20 per cent of NSIA accruals, pessimistically presupposes a perpetually underdeveloped economy and seeks to defer currently available resources for use when the oil stops flowing in, according to projections, 30 years from now. But the history of developed countries including fairly recent entrants such as Singapore, China and South Korea conclusively teaches that sound deployment of national resources as and when they are realised could give rise to an industrialised or First World Nigerian economy well before the oil wells dry up. An industrialised economy grows self-sustainably and generates far greater savings than a least developed country like Nigeria today. The FGF is therefore ill-advised.Secondly, another 20 per cent of NSIA accruals will go the Nigeria Infrastructure Fund (NIF). The list of infrastructure schemes covers the gamut of standard government budget infrastructure projects. But predating NSIA, a supra government agency, is the National Economic Council as well as the upcoming regional development commissions. Either body is a broad based forum at which the states may democratically decide to jointly fund infrastructure projects using contributed funds from their revenue allocations and internally generated revenues. Hence, in place of NIF, the existing institutions as originally intended should be made to function effectively.Thirdly, a further 20 per cent of NSIA accruals are meant for the Economic Stabilisation Fund (ESF). Today some US$7.3 billion FA funds lie idle in the ECA while in Lagos State, shortage of funds has slowed down work on several vital projects including the light rail and 10-lane Badagry road. The immediate result of the ECA or NSIA, when functional, is to perpetuate the high recurrent budget to low capital budget expenditure ratio, which retards development and provokes public criticism every year. To ensure fast development and bring about high capital budget expenditure to moderate recurrent budget expenditure ratio, all government revenue receipts plus borrowings of up to 3 per cent of GDP should be deployed productively subject only to the absorptive capacity limit. The borrowing leeway is an inbuilt stabilisation mechanism which renders deducting FA oil earnings for ESF and budget stabilisation redundant.The fourth segment of NSIA, which accounts for 40 per cent of its accruals, has no specific purpose assigned to it. Implicitly, while the country chases huge multilateral loans, the NSIA would arbitrarily place such NSIA funds with foreign financial institutions, which happen to be the erstwhile employers of several government top notchers who have since 1999 failed to fix the resources-rich economy. The experience during the 2008 financial meltdown shows that such fund placements would be at great risk. It is unacceptable. Therefore, the NSIA as legislated should be jettisoned.Fortunately, through adherence to economic, fiscal and monetary practices (which is the very least expected from the government by the 1999 Constitution), the Federal Government alone can still establish a truly beneficial Sovereign Wealth Fund (whose funding would not attract any controversy). This is irrespective of which tier of government collects the lion's share of FA accruals and regardless of full disbursement of total FA accruals every month as demanded by all states. This will help accelerate national development as long as allocations of FA oil proceeds are paid in dollars (preferably into dollar domiciliary accounts of FA beneficiaries) for conversion to naira revenue when required through deposit money banks (DMBs). The process will end the persistent harsh economic conditions and the ample supply of government and autonomous foreign exchange will more often than not exceed genuine demand arising from eligible economic transactions. That will lead the DMBs to sell any excess dollars to the CBN for additional naira funds thereby swelling foreign reserves. CBN holdings of foreign reserves over and above the conventional three months' import cover, balance of payment requirement and a reasonable buffer level could and should be transferred to a federal sovereign wealth fund that is wholly dedicated to financing critical national projects.Pertinently, the projects for which a loan of $1.1 billion is at present being arranged from China can be better and more cheaply financed internally. The loan would come from the China Investment Corporation and/or the China-Africa Development Fund, which was established in 2007 with part of China's foreign reserves. In tune with patriotic calls on government to patrionise made-in-Nigeria products, the Federal Government should lead the way, correctly deploy and make the country's ample supply of foreign exchange the first choice in the march to rapid national development.
Click here to read full news..
