S-South governors to float $100m sovereign wealth fund

There are reports that the six states of the South-South geo-political zone may float “a $100 million Sovereign Wealth Fund (SWF) that will attract investment around the world”. However, in the current economic climate, the governors should reflect on whether the establishment of a SWF, among the all the pressing problems in the Niger Delta, should be their priority.

The U.S. Treasury Department’s defines a SWF is an investment vehicle established and controlled by a government entity with funds separate from official reserves. The emphasis is on investment activity and governmental control, rather than just a list of investments. A Sovereign Wealth Fund therefore does not attract investments, rather it invests its funds.

Indication that the South-South Governors’ Forum is eyeing the establishment of SWF emerged as they accepted a report to this effect submitted to it by Prof. Pat. Utomi-led economic committee at its last meeting in Asaba, Delta State.

The fund, which would be drawn from the excess crude account, is to be managed by international financial institutions. It is believed that the policy will quicken Public Private Sector Partnership arrangement and not only accelerate the growth of infrastructure but economic integration in the region.

A communiqué issued at the end of the South-South Governors’ Forum in Asaba accepted the floating of the fund in principle and went further to establish an Economic Growth Council.

According to the communiqué, the council will ensure the economic prosperity of the region and implement all programmes in the entire package.

I join the Niger-Delta Professionals in Development (NIPRODEV), led by community development activist, Mr. Joel Bisina, to laud the governors for their boldness in deciding to frontally confront issues that affect the socio-economic and political well being of the people of the South-South, especially the Niger Delta.

Worthy of great commendation is the desire to establish a South -South Economic Growth Council aimed at economic integration of the region which, if properly established, could form the bed rock of regional cooperation in policy formulation and implementation, thus drawing synergy from one and another.

However the establishment of a sovereign wealth fund aimed at developing viable business and economic ventures in partnership with private sector belongs to a different league.

A sovereign wealth fund does not exist simply to “give rise to co-sponsored investment in areas of air, sea and rail transportation finance and even in the oil and gas sector”.

Most oil producing nations have Sovereign Wealth Funds. According to the Global Insights, the world’s leading company for economic and financial analysis, Sovereign wealth funds will surpass the entire economic output of the United States by 2015.

It added, “Sovereign Wealth Funds now represent the most powerful group of global investors and combined sovereign wealth reached US$3.5 trillion in 2007” and still growing by 24%.

The sovereign wealth funds of countries like Kuwait and China have come to the rescue of banks such as Barclays and Citigroup with injections of cash while South Korea’s Sovereign wealth fund pulled out of a last-ditch rescue effort of Lehman’s Brothers last week and triggered its collapse.

I doubt that if and when the South-South  gets its act together to establish an SWF, it will find it easy to just walk into Wall Street and buy big into a U.S. financial institution as China’s CIC (Morgan Stanley, Blackstone), Singapore’s Temasek (Merrill Lynch), and Abu Dhabi’s ADIA (Citigroup) did. And, I am not suggesting that it was easy for these countries either but they definitely have a first mover advantage.

As an expert pointed out to me; there is protectionism in the air. Several U.S. Congress committees (House and Senate) have held hearings on or are investigating SWFs and their investments. Even on the State level, in California, there is a proposed law to prevent the states biggest pension funds from investing in private firms that are wholly or partly owned by SWFs. Of course, the idea is to disincentive private equity from accepting SWF money in California.

She continued: There is much fear that SWFs are not transparent investors and that their motives are not clean, i.e., investing is for purposes other than mere profit making.

Already, the G20 and the EU is mulling over some protective laws out and protective policies. Indeed, international entities such as the IMF (read the Treasury Department) and the OECD are working on initiatives (read protection guidelines) to increase transparency in the workings and investments of SWFs.

So, the playing ground will be different by the time Nigeria comes on scene, if at all. The unfortunate thing is that, as usual, such “guidelines” will be set in stone by the time Nigeria might come on board without any input from us. We keep playing last fiddle in the global economy.

A Sovereign Wealth Fund is arguably a good thing; it gives Nigeria a powerful tool that can be used to advance our national interest. However, Nigeria has issues with vision and transparency.

Firstly, what is the vision? Will the fund be maintained in a way the South-South interest or will it be used in a way that is detrimental to their future, and/or at the expense of our domestic programmes?

In today’s financial circle, there had been “failures galore” in the world of hedge funds, the behaviour of sovereign wealth funds had been without fail suspicious, and now they “seemed to have been found guilty before being proven innocent”.

Kurt Bjorklund, a business leader and managing partner at private equity firm Permira said: ” the debate is about political problems.”

The South-South governors should concentrate on joint economic ventures like a South- South airline, South -South petro-gas industry or even South-South energy, strengthening and harnessing an already existing local technology in the refining of petroleum products as seen by the local refineries in the creeks.

Others could be a Calabar rail link to loop through the entire South-South. This will ease movement of goods and services, thereby reducing the pressure on our roads.