Nigeria Plans to Boost Capital of Sovereign Wealth Fund

Nigerian Finance Minister Ngozi Okonjo-Iweala said the federal government wants to increase the capital of its $1 billion sovereign wealth fund this year even as state governors protest allocations before 2015 elections.

“We want to look at what we can do however small to ensure a steady streaming of income into the sovereign wealth fund,” Okonjo-Iweala, 59, said in an interview yesterday in the commercial capital, Lagos, declining to comment on the possible amount. “This is a very political year, so how we do it and what we do, we need to watch and see what is the best moment.”

The Nigerian Sovereign Investment Authority was signed into law in May 2011 by Nigerian President Goodluck Jonathan. While the fund managed by Chief Executive Officer Uche Orji, a former Goldman Sachs Group Inc., JPMorgan Chase & Co. and UBS AG banker, has started making investments, it is battling to increase in size from its initial capital. Africa’s top oil producer is targeting $5 billion for the wealth fund in the “medium term,” Okonjo-Iweala said last year.

Governors from Nigeria’s 36 states, including Lagos’ Babatunde Fashola, have said the fund is unconstitutional as all oil revenue must go to the federation account and be distributed between state, local and federal governments.

Jonathan’s ruling Peoples Democratic Party is facing its biggest test since the end of military rule in 1999 after a series of defections to the main opposition party before the vote next year.

Crude Account

Okonjo-Iweala said she is also looking to replenish the Excess Crude Account, which holds the savings the nation makes when the oil price is above the benchmark price estimated in the budget. The account has dwindled to $2.28 billion at the end of last year from $8.65 billion a year earlier, according to a Jan. 16 finance ministry statement sent to the House of Representatives Committee on Finance.

“A couple of hundred million dollars” was added to the account in December and nothing this month, Okonjo-Iweala said. “A lot will depend on what happens with the leakages and theft in the oil sector and how we’re able to close that up.”

Okonjo-Iweala said in November the government had to draw down the savings account to compensate for rampant oil theft by gangs in the Niger River delta that have caused crude production to miss budget estimates.

Oil Savings

Nigerian oil production averaged less than 2 million barrels a day last year, according to data compiled by Bloomberg, compared with the 2.53 million barrels the government had predicted. Africa’s most populous country of about 170 million, depends on crude exports for about 80 percent of government revenue and 95 percent of export income.

Savings are also being undermined because the state oil company retained $10.8 billion in revenue, leaving the nation exposed to possible oil price shocks, central bank Governor Lamido Sanusi said in an interview last week. The Nigerian National Petroleum Corp. has said it spent the money on pipeline repairs, fuel subsidies, crude losses and reserve fuel.

The West African nation’s gross foreign currency reserves have fallen 11 percent from last year’s peak of $48.25 billion in May.

Nigeria is seeking to plug a housing deficit of 17 million with the creation of a mortgage-finance company that the government says will mimic the U.S.’s Fannie Mae.

The Nigeria Mortgage Refinance Co. will sell 50 billion naira ($317 million) of long maturity bonds within the next three to four months, with another sale of 50 billion naira planned in six to nine months, Okonjo-Iweala said.

Development Finance

“The government has created a kind of yield curve and we hope that institutions like Pencom, our pension organization which has now some robust amount of assets, I think up to $15 billion, can invest in that,” she said. “It will be a fit in terms of their profile.”

Nigeria is seeking to create a development finance institution this year similar to Germany’s KfW and Brazil’s BNDS to aid investments in long term projects, the minister said.

Existing funding institutions, such as the Bank of Agriculture and Bank of Industry “that are not working well” will be partially privatized, restructured and strengthened, she said. The government has been in talks with Rabobank International, which has shown interest in acquiring one of the lenders, Okonjo-Iweala said.

“Without long term money in this country we cannot sustain the 7 percent growth,” said Okonjo-Iweala. “You can’t expect people to borrow short term, for three years, to invest in a 15-year endeavor and that’s what happening now and it’s very costly.”

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