West Africa Rising: Will a sovereign wealth fund really help reverse Nigeria's 'oil curse'?
On Dec. 1 last year, Nigeria’s cabinet approved the creation of a sovereign wealth fund that would invest any excess revenues generated from the sale of the country’s oil.
Freetown, Sierra Leone
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A developing country is blessed with natural resources worth billions of dollars on the global market, but the revenues are lost to corruption, conflict, or simple mismanagement. Meanwhile, the bulk of the country’s citizens can’t seem to scratch their way out of poverty.
Nigeria, Africa’s biggest oil exporter and third-largest economy, is often seen as the poster child for the phenomenon. But now, the country is trying to change.
On Dec. 1 last year, Nigeria’s cabinet approved the creation of a sovereign wealth fund that would invest any excess revenues generated from the sale of the country’s oil, which it exports at a rate of roughly two million barrels per day.
The revenues from those investments would be funneled in three directions. The biggest chunk of money would be used to build Nigeria’s physical infrastructure. A second and smaller portion would fund an economic stabilization program, while a third would be set aside “for future generations.”
The proposal for the fund is now before the Nigerian Parliament. A vote is expected before the country’s presidential election, which is set for April 9.
Haven't we seen something similar before?
This isn’t the first time that the country has made such an effort. In 2003, under pressure from the International Monetary Fund, Nigeria set up the Excess Crude Oil Account, or ECA, to serve a similar purpose.
But the regulations governing the ECA are lax, and officials at various levels of government have dipped into it frequently. The fund has hemorrhaged $20 billion since it hit its peak in 2006; it now stands at less than $1 billion.
“The present arrangement [the ECA] is just an administrative arrangement, it has no legal basis,” Nigerian finance minister Olusegun Aganga told reporters in September, according to Reuters. “What we have to begin now is to give it a legal basis so the excess crude account will be replaced by a legal arrangement … in line with international best practice."
Proponents hope that the new fund will attract investors and, in time, help lift Nigerians’ standard of living.
By many counts, it has a long way to go on that front.
With a gross domestic product (GDP) of roughly $175 billion, Nigeria has an economy bigger than those of New Zealand and Chile, both members of the rich-countries-only Organisation of Economic Co-operation and Development.
But on the United Nation’s Human Development Index, a measurement of the general well-being of a country’s citizens, Nigeria falls in the bottom 20 percent, coming in at 142nd out of 169. A Nigerian child born today can expect to live just 47 years.
If Nigeria’s new fund succeeds in delivering tangible infrastructure improvements and other development outcomes from its oil profits, the country could become a role model for other poverty-stricken but resource-rich countries in West Africa.
Ghana just began pumping oil in December, and significant reserves have recently been found off the coasts of Liberia and Sierra Leone. No doubt those countries will look to their larger neighbor to the east, the region’s economic heavyweight, in deciding how to manage their own oil revenues.