A Rotten Financial System - Part Two

A ROTTEN FINANCIAL SYSTEM: THE IMAGE OF THE NIGERIAN NATION – PART TWO
BY TONY OKONMAH

Last week, I analysed the issue of financial repression in the Nigerian financial system and the debate was centred on the Asset Management Corporation of Nigeria (AMCON), an agent of financial repression?

As worrying as the constitution and mandate of AMCON may be, a more disturbing issue to soon implode on the Nigerian nation is the unfolding saga regarding the Sovereign Wealth Fund (SWF). Is the SWF another agent of financial repression? What is Sovereign Wealth Fund (SWF)? Andrew Rozenov was the first to coin the phrase in 2005 and was published in the Central banking journal entitled "who holds the wealth of nations? SWF is defined as a state owned investment fund composed of assets such as bonds, stocks, property, precious metals and other financial instruments. Sovereign Wealth Fund Invest globally. In other words, Sovereign Wealth Fund is the gains from an extractable economy that is put into a non extractable economy globally for future generations.

The funding for a Sovereign Wealth Fund comes from Central bank reserves from budget and trade surpluses and revenues from exports of natural resources. In the case of Nigeria, it is the excess gains from oil prices especially from the turmoil in the Middle East and North Africa of recent. The need for the SWF is that countries through the SWF diversify their revenue streams by devoting a portion of its reserves to an SWF that invests in the types of assets which acts as shields against systemic risk, and in the case of Nigeria, against oil related risk.
In other nations of the world, the amount of money in the SWF is substantial. I am not aware of the exact amount Nigeria has in her SWF, but only a paltry 10% of that amount is devoted to:
Provide infrastructure at state level and Federal Capital territory.
Provide stabilisation fund for sustenance of the economy.
Provide savings for future generation.
What is interesting to observers regarding the above three mandates of the Nigerian SWF is that the 10% is to cover points 2 and 3. The questions analysts are asking are, what happened to the 90% of the fund? Where is it invested?

The international community are not bemused that Nigerian politicians sees the SWF as a window of opportunity to increase their salary by 110% and the state governors all calling for their share of the SWF instead of an avenue to save money for the nation. Is the Sovereign Wealth Fund another agent of financial repression in Nigeria?

Tony Okonmah writes from London. This article was published in October 2011 in The Guardian Nigeria News.