Sovereign wealth fund is illegal’


By Bassey Udo With additional reporting by Stanley Oronsaye August 22


The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) says the Sovereign Wealth Fund being proposed by the Federal Government is illegal, as its foundations are not rooted in the provisions of the country’s constitution.


The Fund is for the accumulation of excess revenue from trade and crude oil exports for investments and development of critical infrastructure that would benefit both the country’s economy and the citizenry in general.Olusegun Aganga, the Minister of Finance, said the decision to establish the Fund is to enable it serve as a catalyst for the nation’s economy development.


Mr. Aganga said the apparent lack of discipline among managers of the nation’s finances over the years has necessitated “a very strong structural vehicle, properly managed by local and international advisers, to meet the triple objectives as a stabilisation fund to support annual budget deficits; savings for future generations, as well as funding for the development of the nation’s basic infrastructural needs.”


Though consultations are said to be ongoing on its operational structure, management as well as other governance issues preparatory to its take off, Ibrahim Dankwambo, the Accountant General of the Federation (AGF), said last week that the government has already set aside $1billion (about N150billion) as seed money for the Fund.


But, a RMAFC Federal Commissioner, who spoke last Thursday on condition of anonymity, said “government is treading the path of illegality in pursuing a justifiable agenda”, pointing out that “no matter the good intentions of government, the structure establishing the SWF would render it defective, illegal, null and void, if its existence and operation are not derived from the provisions of the country’s constitution.”


He said that though the revenue mobilisation agency is yet to formally write to the Presidency on its position on the proposal, it, however, made its concerns known during a meeting convened recently by the Federal Ministry of Finance to discuss the issue of government treading the same path of unconstitutionality when it established the Excess Crude Account (ECA) and the Excess Revenue Account (ERA).


Erosion of Obasanjo’s legacy

The ECA was established in 2003 by the Olusegun Obasanjo administration to accumulate revenues earned from crude oil exports above approved benchmark price indicated in the annual budgets, while the ERA was opened recently for all monthly revenue accruals in excess of about N365 billion pegged as ceiling for distributable allocations for sharing by the Federation Accounts Allocation Committee (FAAC) to the Federal and the 36 state governments as well as the Federal Capital Territory (FCT), Abuja.


The ECA was also in fulfilment of the conditions by Nigeria’s debtors for the external debt pardon Mr. Obasanjo got the country. But the Act came into force in July 2007 with the account reaching $20 billion in January 2007.Sections 162 of the 1999 Constitution stipulates that all federally collected revenues, namely oil and non-oil revenues earned from crude oil sales, royalties, petroleum profit tax (PPT), gas revenue, rentals, penalties from gas flaring and miscellaneous oil earnings as well as company income tax (CIT), import duties, excise duties, and Customs penalty charges are to be lodged in the federation account.


The RMAFC is the only government agency mandated under Section 162 (2) and (3) to recommend the distribution of the amount standing to the credit of the Account among the federal, state and local governments in each state on such terms, and in such manner as prescribed by the National Assembly.The implication of this, according to the commissioner, is that any disbursement, withdrawal or appropriation of government revenue without strict compliance with these provisions, as has been the case with government’s management of the ECA and ERA, is unconstitutional.


“The RMAFC has consistently criticised the practice by the Presidency and the Federal Executive Council (FEC) to approve withdrawals from the ECA, which has been depleted from over $22billion in 2008 to about $460million as at last month. The FEC is made up of a group of politicians, whose decisions should not set aside the supremacy of the constitution, particularly on issues that have to do with the nation’s finances.


“Though the minister has indicated that the ownership of the SWF would be devoid of the control of either the federal or state governments, and managed through a Council, whose members would be made up of representation from all parts of the country, including women groups, student bodies, civil society organizations, public and private sectors, its existence still requires a constitutional backing to make it legal. The only way that can be done is if the constitution is amended,” he said.


Meanwhile, Razia Khan, a financial analyst and regional head of research, Africa for Standard Chartered Bank, London said that “the sheer amount of liquidity that has been pumped into the system, with spending ramped up dramatically in this year’s budget, and an increased pace of disbursal from the excess crude account, eroding much of Nigeria’s saved oil windfall is a concern.”


“While the evidence suggests that economic growth remains weak – for now, at least – limiting the likelihood of significant demand-related price pressure, the amount of liquidity out there still sits uncomfortably with many.”





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