March 13, 2015

The Nigerian Sovereign Wealth Fund Can’t Save Nigeria’s Economy Just Yet

Dolapo Omidire

In 2012, the Nigerian Sovereign Investment Authority (NSIA) was created to drive sustained economic development for the benefit of all Nigerians by building savings, enhancing infrastructure development and providing stabilisation support in times of economic stress. The NSIA manage the country’s Sovereign Wealth Fund. This is simply an investment fund owned by government of a sovereign state, funded by revenues accrued from the export of non-renewable natural resources, usually oil and other hydrocarbons taxed or owned by the government.

In an interview with Bloomberg Television, Managing Director of the NSIA, Uche Orji said the fund isn’t yet large enough to make withdrawals worthwhile. Adding that withdrawals would be an option in future years once the fund is larger.

The Stabilisation Fund (SF) is the smallest of the three NSIA pools of capital, with a 20% allocation of Funds under Management ($1bn). The purpose of the SF is to act as a buffer against short-term macro-economic instability associated with considerable government revenues derived from hydrocarbon exports.

The fall in oil prices has caused significant macro economic instability for the Nigerian government as they rely on the resource for 70% of their revenue. However, it would be shortsighted to make withdrawals now as the capital has not been completely deployed and investments made have not started to make significant returns. Other oil countries like Norway have stated that they are expecting periods of significant economic downturn, however they have the largest world’s largest Sovereign Wealth Fund with over $800bn of assets.

During the interview with Bloomberg, Orji explained that fund would focus on allocations to Nigerian power, real estate, agriculture and health care this year. Of the 3 Funds created under the Nigerian Sovereign Wealth Fund, the stabilsation fund is the only one that does not intend to make any investments in real estate. The Nigerian Infrastructure Fund will be exposed to real estate by their interest in investments opportunities including office buildings, shopping malls, industrial real estate, residential real estate and hospitality (5-Star hotels). The longer investment horizon Future Generations Fund also has some allocation for real estate. 25% of this fund has been allocated to investing in Private Equity, Venture Capital and Valued-Added real estate. Find out more about the Nigerian Sovereign Wealth Fund and real estate in our Analysis of their 2013 Annual Report.

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