Chapter 11: The Sovereign Wealth Mandate: Replacing the Excess Crude Account with a Future Fund

We stand at the precipice of a generational choice: to continue the cycle of resource plunder that has defined Nigeria's petroleum age or to architect a financial fortress for our descendants. The Excess Crude Account (ECA), born of good intentions but crippled by political expediency, represents the old paradigm—a temporary shelter in perpetual storm. What we require now is nothing less than a permanent citadel: The Nigeria Future Fund.

A Legacy of Resource Mismanagement

Nigeria's oil wealth, discovered in 1956 at Oloibiri in the Niger Delta, has been a double-edged sword. On one hand, it catapulted the nation into the global economy, making it Africa's largest oil producer and a significant player in the Organization of the Petroleum Exporting Countries (OPEC). On the other, it has been a source of strife, corruption, and fiscal mismanagement. The oil boom of the 1970s, which saw prices skyrocket following the Arab-Israeli War, brought unprecedented revenue to Nigeria. However, instead of being a blessing, it became a curse as the country succumbed to the "Dutch Disease," where oil revenues led to neglect of other sectors, notably agriculture.

The mismanagement of oil revenues is not a recent phenomenon. As early as 1980, the then Head of State, General Olusegun Obasanjo, established the Petroleum Trust Fund (PTF) to manage oil revenues for infrastructure development. However, the PTF was marred by allegations of corruption and inefficiency, failing to achieve its objectives. This pattern of mismanagement has continued, with successive governments failing to effectively utilize oil revenues for sustainable development.

The Rise and Fall of the Excess Crude Account

In 2004, the Excess Crude Account was established as a savings mechanism for excess oil revenues, with the aim of stabilizing the budget and providing a buffer against oil price volatility. The ECA was a step in the right direction, but it was not backed by legislation, making it vulnerable to political manipulation. Over the years, the account was repeatedly raided to fund non-essential projects and settle pressing financial obligations, undermining its purpose.

Data from the Central Bank of Nigeria (CBN) shows that between 2004 and 2015, the ECA received approximately N7.07 trillion. However, much of this was withdrawn and spent, often on projects that did not contribute to long-term economic development. By 2015, the account had dwindled significantly, highlighting the need for a more robust and legally backed savings mechanism.

"A nation that sells its children's inheritance to pay for its parents' excesses has committed intergenerational treason. The oil beneath our soil doesn't belong to us alone; it's a trust for our children and their children." - Dr. Ngozi Okonjo-Iweala, former Finance Minister

Learning from International Best Practices

Several countries have successfully managed their natural resource wealth through Sovereign Wealth Funds (SWFs). Norway's Government Pension Fund Global (GPFG), established in 1990, is a prime example. The GPFG has grown to be one of the largest SWFs globally, with assets exceeding $12 trillion. It is managed with strict adherence to transparency and ethical investment guidelines, providing a financial safety net for future generations.

Another example is Singapore's Temasek Holdings, established in 1974. Temasek has been instrumental in managing the government's investment portfolio, focusing on long-term returns and strategic investments that drive economic growth. These examples demonstrate the potential of well-managed SWFs to transform resource wealth into lasting prosperity.

The Case for the Nigeria Future Fund

The Nigeria Future Fund (NFF) should be designed to address the shortcomings of the ECA and learn from international best practices. It must be backed by legislation that ensures its independence and operational autonomy. The NFF should have a clear mandate to manage Nigeria's oil wealth for the benefit of future generations, with a focus on long-term investments that promote sustainable economic development.

A key feature of the NFF should be its transparency and accountability framework. This could include regular audits by independent bodies, publication of investment decisions, and adherence to international best practices in SWF management, such as the Santiago Principles. By doing so, the NFF can ensure that it operates with the highest standards of governance and integrity.

Voices from the Field

Insights from stakeholders across Nigeria underscore the need for a robust SWF. Aliko Dangote, Chairman of Dangote Group, has emphasized the importance of investing oil revenues in infrastructure and human capital to drive economic diversification. Similarly, former Governor of the CBN, Sanusi Lamido Sanusi, has advocated for a SWF that prioritizes investments in critical sectors such as education, healthcare, and infrastructure.

At a stakeholders' forum held in Abuja in 2022, participants called for a comprehensive framework that ensures transparency, accountability, and inclusivity in the management of the proposed NFF. They also stressed the need for broad-based consultation and legislative backing to give the fund the stability and credibility it requires.

Investment Strategy for the Nigeria Future Fund

The investment strategy for the NFF should be geared towards maximizing long-term returns while minimizing risk. This could involve a diversified portfolio that includes investments in global equities, bonds, real estate, and strategic investments in key sectors of the Nigerian economy. The fund should also prioritize investments that support sustainable development goals, such as renewable energy and infrastructure projects that enhance economic resilience.

• Invest in a diversified portfolio to minimize risk and maximize returns.
• Prioritize investments that support sustainable development and economic diversification.
• Ensure transparency in investment decisions and outcomes.

Conclusion

The establishment of the Nigeria Future Fund represents a critical step towards breaking the cycle of resource mismanagement that has characterized Nigeria's oil age. By learning from international best practices and incorporating insights from stakeholders, the NFF can be designed to ensure that Nigeria's oil wealth benefits not just the current generation but also future generations. It is a choice between continuing down the path of resource plunder or building a financial fortress for our descendants. The time to make this choice is now.

The journey towards establishing the NFF will require concerted effort from policymakers, legislators, and the Nigerian people. It demands a commitment to transparency, accountability, and long-term thinking. As we embark on this journey, we must remember that the oil beneath our soil is not just a resource to be exploited but a trust for our children and their children. The Nigeria Future Fund is not just a financial instrument; it is a promise to the future.