Dec. 1 (Bloomberg) -- Nigeria’s cabinet approved the creation of a sovereign wealth fund at a meeting today in a bid to secure more of the country’s oil revenue for future generations.
The bill will now go to parliament for approval, Information Minister Dora Akunyili told reporters in the capital, Abuja. The government has put aside $1 billion to set up the fund, Finance Minister Olusegun Aganga said on Sept. 3.
“There are tremendous benefits” from establishing the Nigeria Sovereign Investment Authority, including a possible improvement in the country’s credit rating, Akunyili said.
The fund will ensure that Africa’s most populous country and top oil producer saves more revenue in periods of high oil prices and doesn’t spend it when crude declines. Fitch Ratings lowered its outlook on Nigeria’s BB- credit rating to “negative” from “stable” on Oct. 22, saying it was concerned by withdrawals from the excess crude account and a drop in foreign currency reserves.
Nigeria relies on crude oil exports for about 95 percent of its foreign currency earnings, according to the Finance Ministry. The West African nation is the only member of the Organization of Petroleum Exporting Countries without a sovereign wealth fund, according to Akunyili.
While the creation of the fund is a good idea, it won’t solve the problem of fiscal discipline in the country, Bismarck Rewane, chief executive officer of Financial Derivatives Co. Ltd., a Lagos-based fund manager, said by phone today. “It has to start from the executive.”
To contact the reporter on this story: Paul Okolo in Abuja at email@example.com.
To contact the editor responsible for this story: Philip Sanders at firstname.lastname@example.org.