IMF is Right, Nigeria should Channel More of its Proceeds from Oil into the NSIA

The International Monetary Fund (IMF) recently released its Fiscal Monitor report which ranked Nigeria second to last on our sovereign wealth fund.
Initially analysts and commentators translated this raking as an indictment on the Nigeria Sovereign Investment Authority (NSIA), but the IMF clarified a day later that they were referring to Nigeria’s Excess Crude Account (ECA), not NSIA.

In its clarification the IMF said “…There have been two Sovereign Wealth Funds in Nigeria. There have been the Excess Crude Account (ECA) and the Nigeria Sovereign Investment Authority (NSIA). The NSIA is running transparently, on standard best practice and it has been doing a good job.”

IMF’s revision confirms what stakeholders and anyone who has interacted with the NSIA can confirm that as an institution, the NSIA is one of the best, if not THE best, public institutions in the country in terms of its leadership, governance, management, operations, performance and engagement with its stakeholders. The NSIA is quite simply a world class institution, run by an outstanding management team and board.

The one area that the NSIA falls down flat on its face and which, perhaps the IMF was trying to draw attention to is the relatively meagre size of funds the NSIA is allowed to manage. In this regard the IMF is right.
The transparently run, high performance NSIA has received less than $2 billion since its inception in 2012, while the Excess Crude Account has accrued over $200 billion since its inception in 2004.

What is the ECA?
Since 2004, every year, during the national budget cycle, an oil ‘benchmark’ price is set. Any oil income above this benchmark is saved in a government account called the Excess Crude Account (ECA). Setup in 2004, its aim was to provide an alternative source of funding the budget in years when the oil price is low, therefore insulating the country from volatile oil prices.
A great idea in principle except that critics challenged its legality, structures and its opacity. The Excess Crude Account’s lack of rules governing deposits, withdrawals, and investments led to the Natural Resource Governance Institute ranking Nigeria as the most poorly governed fund among 33 resource-rich nations in a 2017 report.

What is the NSIA?
The Nigeria Sovereign Investment Authority (NSIA) was established to take over the role of the ECA. It was properly established legally and structured as a national sovereign wealth fund, similar to other country sovereign wealth funds.
It started operations in 2012, and should have by now completely taken over the role of the ECA, but that has not happened.

NSIA versus ECA
While the NSIA invests its funds professionally and transparently along global best practice standards, increases its value by investing in a diversified portfolio of investments and earning profits from its investments, the ECA has acted like a slush funds for successive administration from which disparate and opaque expenditure ranging from the fuel subsidy paid to fuel marketers to SURE-P social investment scheme and power industry interventions are drawn. No comprehensive public records exist on the withdrawals from the ECA.
One can see how corrupt administrations would find it difficult to wind up this slush fund.

Beyond a rainy day
The true value of an institution like the NSIA lies beyond its rather biblical objective of saving for a rainy day.
The most important side benefit of the NSIA is its ability to attract quality co-investors globally.

Co-investment magnet
As an internationally highly rated professionally managed financial institution with an internationally reputable CEO, the NSIA is the only institutional investors in Nigeria that can attract other SWF’s to invest alongside it in Nigerian infrastructure and other key sectors.
The NSIA has already demonstrated this capacity in the Agriculture sectors, with its US$200 million partnership with Old Mutual.
Another example is the infrastructure credit guarantee company – InfraCredit, a new partnership with European Development finance institutions. InfraCredit, a company founded by NSIA has attracted US$60 in the last 6 months as investors continue to pour into it. A game changes in Nigeria’s infrastructure finance bottleneck, InfraCredit has made it possible for infrastructure companies to raise long term capital from pension funds at up to half the cost and up to double the typical tenure of such credit.
The NSIA, if allowed, could realistically attract over 10 times its accrued income from the Nigerian Government from international institutional investors. Assuming NSIA accrued US$10 billion from the Nigerian Government, global partnerships could channel up to US$100 billion into the Nigerian economy.

I say allowed because proposals for such expansion, even when they are brought by international investors, can and perhaps have in the past been met with accusations of empire building by some senior administration appointees who felt threatened by such a large pool of finance being outside their direct control.
Perhaps if the powers that be understood that the global institutional investor asset base is estimated to exceed US$100 Trillion by 2020, they would encourage the only Nigerian institution that has the credibility to attract a significant proportion of this pool, the NSIA, to pursue an ambitious and exponential expansion strategy, instead of trying to clip its wings.

NSIA and Jumia
Last week, for the first time ever, a Nigerian company, the online marker Jumai, was valued at over US$1 billion on the New York Stock Exchange.
The link from NSIA to the Jumai listing is a very simple and straight forward one.
There is an ecosystem that initiates, nurtures, propels and catapults a 7 year old startup like Jumia from nonexistence and obscurity into the global unicorn universe of billion dollar companies. That ecosystem is called the venture capital and private equity ecosystem.
Venture capital and private equity is a special type of finance that backs startups and existing businesses that have very high growth potential, like Jumia.
Venture capital and private equity finance, typically provides interest free, collateral free, long term finance to startups and existing businesses allowing them the space to grow in a way that short term, collateral requiring, interest bearing bank lending simply cannot achieve in significant quantity.

That ecosystem is anchored by the NSIA in Nigeria. The NSIA in its short lifetime has made the largest number of fund investments in venture capital and private equity funds of any domestic institutional investor.
If the NSIA were allowed to expand its accrued funds and global partnerships, it could anchor venture capital and private equity funds in each of the 6 geopolitical zones, modelled on the recently proposed Niger Delta Investment Fund.
The economic impact of unlocking the potential of the NSIA on Nigeria’s infrastructure, agriculture, healthcare, education not to mention technology sectors will set Nigeria on its way out of the league of the worlds largest number of poor into the league of fastest growing economies.

What next
The new Buhari Next Level Anti-Corruption administration would do well to, as a matter of priority, wind down the ECA and operate only the NSIA, commit to and deliver on its commitment to save and transfer at least US$1 billion in excess crude proceeds a year into NSIA and encourage the NSIA to maximise its external international investment partnerships.
Exponentially expanding the capacity of NSIA is one of the steps a serious administration can take to reposition Nigeria in the global investment context.

• Barbara James, is CEO of Henshaw Capital Partners and former MD of the African Venture Capital Association (AVCA).