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Exclusive interview: Nigeria ready to launch sovereign wealth fund

Finance minister tells Euromoney he hopes legislation is passed in the next month; External managers have already been approached for fund which could receive $26 billion in its first year


 Nigeria Finance Minister Olusegan Aganga
It is Nigeria's “aspiration and plan” to gain final
legislative approval to create a sovereign
wealth fund before April’s presidential election

- Nigeria Finance Minister Olusegun Aganga
Nigeria’s government hopes to gain final legislative approval to create a sovereign wealth fund before April’s presidential election, according to the country’s finance minister.

It is “our aspiration and plan,” says Olusegun Aganga, who adds the new institution will adopt the 2008 Santiago Principles on transparency, independence and accountability, in line with other sovereign wealth funds.

The fund, which will manage the country’s excess oil reserves, will be split into three parts. One would be to provide support for future generations. Another would be to augment the federal budget, but only “when there is a sustained fall in the oil price”, according to Aganga. The final tranche would invest in Nigeria’s arcane infrastructure.

Last July, the finance ministry set aside $1 billion as seed capital for the new fund from an existing savings vehicle, the excess crude account (ECA).

“The former Chilean finance minister, Andres Velasco, who was responsible for setting up the Chilean sovereign wealth fund, is one of our advisors,” says Aganga, in an exclusive interview. JP Morgan and US law firm, Latham and Watkins, are advising too.

In the bill before legislators, each of the fund’s three sections will have a minimum 20% allocation from the overall inflow, which at current prices and output would be potentially $26 billion in its first year. A fund manager “will then have the discretion to allocate the remaining 40%,” adds Aganga, a former Goldman Sachs banker who was appointed finance minister last April.

Once the fund is up and running, his intention is that the money that used to be transferred to the ECA is redirected to the Nigerian Sovereign Investment Authority. The minister says he has already spoken to people outside the government who might run the fund. While he adds that external fund managers would be used, in-house staff would include a chief executive or chief investment officer, risk officer and operations head.

The new fund will improve on the inefficient ECA, which means a legal foundation and much clearer guidelines for accessing the vehicle. Aganga says lack of legal backing was the cause of much of the ECA’s problems.

Money from the new fund will be, adds the minister, “put to work” in local infrastructure projects and for long-term returns.

Aganga is hopeful that the National Assembly passes the bill but even if it rejects it on constitutional grounds, he indicates that the constitution could be changed, although he doubts this will be necessary.

Last year the fund was passed by the cabinet, as well as by the National Economic Council, which includes all 36 state governors. The state governors will be part of the fund’s governing council, alongside the president, federal ministers and representatives of private businesses, so giving it national legitimacy.

Nigeria is Africa’s second biggest oil producer after Angola. Oil accounts for about 80% of the government’s annual revenues.


Euromoney
publishes a detailed feature length interview with Olusegan Aganga in March. 

Aganga reshapes Nigeria’s public finances
Nigeria’s finance minister, Olusegun Aganga, says he has nothing to hide about the pre-election depletion of the country’s Excess Crude Account. But, as he explains to Dominic O’Neill, with a new sovereign wealth fund the government will save more, protecting the economy from shocks and encouraging private and foreign investment in key infrastructure projects.