Cash-strapped state governments show appetite for investments

Governors of Nigeria’s 36 states struggling to finance bloated budgets long on wasteful expenditures and short on realistic revenue projections are demonstrating a willingness to deepen investments.

Last week, the Nigeria Sovereign Investment Authority (NSIA), said that the 36 states of the federation forfeited their share of the 2016 dividends of the Nigerian Liquefied Natural Gas, NLNG, for reinvestment purposes.

Uche Orji, managing director of the NSIA, said the forfeited 2016 dividends by the states were reinvested by the NSIA in the Sovereign Wealth Fund (SWF) when he met with officials of Nigeria Extractive Industries Transparency Initiative (NEITI) in Abuja.

Orji said the Nigeria Governors’ Forum that was initially opposed to the organisation’s mandate is now one of its greatest supporters at the moment. He said the $250 million that was invested in 2016 came from the state governments’ share of the NLNG dividend.

This is a significant departure from the governors’ position a few years ago. Ngozi Okonjo-Iweala as finance minister, during the administration of former president Goodluck Jonathan fought a bruising battle with state governors to invest part of oil income.

A Supreme Court ruling in the favour of the governors ruined the administration’s plan to keep part of the income for future generations. So the renewed appetite for investments is laudatory.

Nigeria’s present economic crises stem from poor management of oil income. Waziri Adio, executive secretary of NEITI recently stated that if Nigeria had saved between $50 billion and $150 billion in the Excess Crude Account (ECA) alone before oil prices started sliding south in mid-2014, the country would have minimised the impact of the current low oil prices.

Adio said that having that quantum of savings in ECA was possible because at some point in 2008, Nigeria had $20 billion in the ECA, and this was after $12 billion had been paid to the Paris Club to get $18 billion loan reprieve. This was much before oil prices lingered in $100+/barrel territory for four years.

This is contrast with Saudi Arabia and Norway that have billions in their sovereign wealth funds. These countries planned for eventualities because prices of natural resources are known to be very volatile, prone to fluctuation not only across fiscal years leaving oil-dependent countries with fiscal fissures.

Nigeria’s new oil policy prescribes that portions of crude income be saved. According to NEITI, Nigeria currently has three different oil savings funds: the 0.5 percent Stabilization Fund, started in 1989, with a current balance of $95 million; the ECA, started in 2004, with a current balance of $2.3 billion; and the Nigerian Sovereign Investment Authority (sovereign wealth fund), started in 2011, with a current balance of $1.5 billion. The combined balance in the three accounts is $3.9 billion.

The urgency to save aggressively also stems from the growth of renewable energies and electric cars all around the world. In a world where countries that are producing cars are proposing dates to ban fossil-fuel cars, requires wiser use of crude oil earnings.

The NSIA, set up to receive, manage and invest in a diversified portfolio of medium and long term revenue yielding projects deserves increased funding not just from states but also from the Federal Government.

A key reason is because the organisation invests in projects with huge potentials for direct positive impacts to the development of critical infrastructure in Nigeria, inflow of foreign investment, economic diversification, growth and job creation.

ISAAC ANYAOGU