Nigeria Targeting 10% Economic Growth Amid Plans to Create Oil Wealth Fund
Sept. 3 (Bloomberg) -- Nigerian Finance Minister Olusegun Aganga talks about preparations for elections next January and the government's plans to boost economic growth through state asset sales. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Nigeria’s government is targeting economic growth of 10 percent as it creates an oil-financed infrastructure fund, encourages foreign investment in the power industry and abolishes fuel subsidies that have drained the national purse, Finance Minister Olusegun Aganga said.
Africa’s top oil producer also plans to sell its first global bond of $500 million in October, Aganga, 55, said in an interview in London today.
President Goodluck Jonathan said on Aug. 26 that the government plans to dissolve the state power monopoly and expand electricity generation through private investment to ease shortages in the continent’s most populous nation. A sovereign wealth fund financed by oil revenue is also expected to be set up by October to help pay for infrastructure, Aganga said. The fund will start off with about $1 billion, he said.
“Today we have a government that’s committed to encouraging investment,” Aganga said. “We have a government ready to deliver infrastructure.”
Power outages are a daily occurrence in Nigeria, where demand for electricity is almost double the current supply of 3,000 megawatts. Nigeria, Africa’s second-largest economy after South Africa, has a population of 140 million.
‘Achievable’
Boosting growth to a minimum of 10 percent in coming years is “achievable” as investment in infrastructure climbs, Aganga said. The economy expanded 7.4 percent in the first half of the year, compared with 5.9 percent in the same period last year, driven by growth in the non-oil industries, he said.
The sovereign wealth fund will replace the Excess Crude Oil Account, which the government has often used to finance expenditure, Aganga said. Part of the new fund will be dedicated to savings that the government can’t touch unless oil prices plummet, while most will finance infrastructure projects, he said.
The Excess Crude Oil Account should reach about $1 billion by the end of the year, from between $500 million and $800 million currently, Aganga said. That will be transferred to the sovereign wealth fund and act “as a catalyst for both local and international investors,” he said.
A third part of the sovereign wealth fund will be a stability fund, which will be similar to the current Excess Crude account, though harder for the government to access, Aganga said.
Power Industry
Nigeria is also aiming to attract investment in its power industry, and has received interest from investors in China, Brazil and Germany, Aganga said in an interview with Maryam Nemazee on Bloomberg TV’s “The Pulse” in London today.
“We’ve had calls from so many investors,” he said. Even before recent changes to the industry were announced, “I received at least two to three calls from major investors.”
Investors are skeptical Nigeria will be able to attract a wave of investment in power plants and infrastructure as it prepares for general elections, due as early as January, and the global economic recovery loses momentum, said Yvonne Mhango, an economist at Standard Bank Group Ltd., Africa’s biggest lender.
“These are very ambitious policies that are necessary to unlock the bottlenecks in the economy,” Mhango said in a phone interview from Johannesburg today. “Whether the political environment will allow them to do so is a different thing.”
Jonathan, who appointed Aganga to his position in April, has driven the government’s plans to overhaul the power sector. The president hasn’t said yet whether he will run to keep his post.
‘Uncertain Times’
“Jonathan has put a greater emphasis on the power sector,” said Mhango. “The durability of that depends on whether he stays in power. It’s still uncertain times.”
The benchmark Nigerian Stock Exchange All Share Index has gained 5.6 percent in the past six months, while the naira dropped 0.6 percent against the dollar in the same period.
The sale of Nigeria’s first Eurobond will act as a benchmark, so that companies can price their bonds accordingly, Aganga said. The government has already selected advisers for the sale and is in the process of appointing book runners, he said.
Foreign investor interest in the planned Eurobond has been strong, with some investors asking Nigeria to increase the size to $1 billion, Aganga said.
The government also plans to remove fuel subsidies, possibly within six months, Aganga said. The subsidies cost the government 1 trillion naira ($6.6 billion) in 2009, central bank Governor Lamido Sanusi said on June 7.
Nigeria imports more than 80 percent of its domestic fuel due to a lack of refining capacity, according to the country’s Petroleum Ministry.
“In three to four years’ time, Nigeria will be a different country,” Aganga said. “We have a great story. The numbers tell you that.”
To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net; Paul Okolo in Abuja at pokolo@bloomberg.net.
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