Within the last decade, crises in emerging markets have not only underscored the importance of maintaining adequate external reserves, it has also underscored the need to identify its sustainability. In attempts to achieve macroeconomic stabilisation, Nigeria, like other developing economies, have accumulated substantial foreign currency reserves in recent years.
According to the International Monetary Fund (IMF), reserves management is a process that ensures that adequate official public sector foreign assets are readily available to and controlled by the authorities for meeting a defined range of objectives for a country or union.
It has been argued that the best use of surplus reserves is effective management to maximise profits rather than for liquidity sake. Hence, Sovereign Wealth Funds (SWFs) have a long history of using foreign exchange reserves for profit-seeking investment. This is why SWFs have emerged as a popular institutional blueprint for more active external reserves management.
An overview of SWFs: First established in Kuwait, now a global phenomenon
Essentially, Sovereign Wealth Funds, which was first established by Kuwait in 1953, now serves to protect oil economies from boom and bust. The world’s current largest SWF boasts of assets under management of around $1trn. In 2017, Norway’s sovereign wealth fund exceeded $1 trillion.
Reports have shown that emerging market economies with high levels of international reserves were better prepared to withstand the ripple effects of the 2008/2009 global financial crisis.
Past and current trends
Before the dominance and adoption of the U.S dollar as a vehicle currency, gold (under the gold standard) was the major component of external reserves as the means of settling international debts.
Now economies of the world have adopted the Guidotti rule, which stipulates that developing countries should hold enough reserves to cover all foreign debts that is short-term or maturing within one year.
Currency Accumulations No Some controversies
While currency accumulation is not a new phenomenon, recent activities have also stirred debate. SWFs, unlike foreign reserves, typically seek to diversify foreign exchange assets and earn a higher return by investing in a broader range of asset classes.
However, concerns have been raised about how institutions in the “investing” and “receiving” countries may need to adapt. The issues range from transparent investment approach, information on the type and amounts of assets held, governance structured and how decisions are made on the fund have been mooted as major concerns.
Similarly, critics have expressed worry over currency accumulations managed by the State, citing tendencies of vulnerability to politically driven investment decisions, cronyism, and even corruption.
Nigeria’s Sovereign Wealth Fund: How Reserves maybe affected?
In Nigeria, there are two Sovereign Wealth Funds: the Excess Crude Account (ECA) and the Nigeria Sovereign Investment Authority (NSIA). Note that these two are funded by the savings earned when oil prices are at peak.
Hence, as a larger chunk of revenue is appropriated for ECA and NSIA rise, external reserves are likely to fall. For instance, in 2018, the National Economic Council (NEC) reportedly approved fresh injection of $650m from the reserves into SWF, and that improved the SWF to $2.15 bn.
Nigeria has a Sovereign Wealth Fund established which by the Nigeria Sovereign Investment Authority (NSIA) Act 2011. Specifically, the SWF was reportedly established to address the controversies surrounding the Excess Crude Account (ECA).
The fund is usually expected to generate revenue to meet budget shortfalls in the future, provide dedicated funding for development of infrastructure and keep some savings for future generations.
Is the International Monetary Fund’s (IMF) ranking truly flawed?
Following the IMF’s latest ranking of Nigeria as the world’s second-worst country in the use of sovereign wealth funds, Nigerians have become critical of the excesses of the government in the mismanagement of the country’s commonwealth.
BREAKING: IMF ranks Nigeria as the second worst country in the world in the use of sovereign wealth funds.
— Nairametrics (@Nairametrics) April 10, 2019
However, the Managing Director, Nigerian Sovereign Investments Authority (NSIA), Mr. Uche Orji, faulted the IMF’s ranking, describing it as a flippant piece of work. According to him, the poor ranking is due to Nigeria’s policy to use part of its SWFs’ funds in domestic investment.
IMF’s Bluff: Should it be celebrated?
Just days after the IMF’s controversial ranking, the IMF’s Senior Resident Representative and Mission Chief for Nigeria, Amine Mati, reportedly tried to provide more explanation on the controversial report.
“In view of recent local media reports, I would like to clarify that the reference to the Sovereign Wealth Funds (SWF) included in Figure 2.16 of the IMF’s Fiscal Monitor showing a low ranking for Nigeria does not refer to the Nigerian Sovereign Investment Authority.”
$2.53 Sovereign Wealth Fund: Connecting some dots
Nigeria has reportedly grown SWFs up to $2.53 billion in the last 10 years. Also, Nigeria’s external reserves have continued its bullish run, edging towards $45 billion thresholds. This was last recorded six months ago.
The Naira has has been relatively stable because of CBN’s injections. However, this is only a short term fix which requires appropriate policy restructuring.
“Foreign accumulation is only meant to be a support, not a policy in itself.”
Also, there have been several reported cases of mismanagement of the excess crude accounts. Chief among all is the reported $1.68 billion the Federal Government removed from the ECA in 2018, with claims that the fund was used to offset the last tranche of the Paris Club obligations to states.
There have also been reported cases of accruals being shared every month during the Federation Accounts Allocation Committee (FAAC) across the three tiers of governments in Nigeria.
Way Forward: IMF can’t be ignored
It was recently reported that Nigeria’s external debt stood at $25.2 billion. With external reserves at $44.7 billion, it suggests Nigeria’s external debt is 56% of foreign reserves.
Also, Nigeria’s Debt-GDP ratio, which reportedly stood at 21.1 percent in 2018, appears good. Yet, there has been concern that the economy is treading a risky path.
As recalcitrant as IMF’s fiscal policy stance may appear, corruption and policy somersaults as noted by the Bretton woods organisation, are major banes that must be addressed if the Nigerian economy must fulfil its growth potentials.
House of Reps to make Youths globally competitive
House of Representatives is determined to make the Youths globally competitive.
“Facts don’t lie, a government that has devoted N500bn to youth empowerment every year. There’s Trader Moni, N-Power, and several others, they are all there,” he added.
Gbajabiamila added that the President Muhammadu Buhari’s administration has done a lot about youth empowerment and is ready to do more.
COVID-19: Ogun orders full reopening of churches, mosques, hotels
Religious centres and other public places have been reopened following the success recorded in flattening the curve of COVID-19.
The Ogun State Government has ordered the full reopening of churches, mosques, businesses, hotels, and entertainment centres across the state.
This was disclosed by the State Governor, Dapo Abiodun, in a statement signed by his Chief Press Secretary, Kunle Somorin, via the state’s Twitter handle on Wednesday.
Abiodun stated that the religious centres and other public places had been reopened, following the success recorded in flattening the curve of COVID-19.
According to him, the government is aware that many people are just recovering from the economic hardship imposed by COVID-19, as their activities had been affected by the lockdown, while necessary measures had been put in place to combat the pandemic.
He stated, “In the process of rebuilding the economy, the State Government was irrevocably committed to the successful implementation of the “Building our Future Together” agenda, and would ensure everything possible for people to have increased prosperity that would place the State on a sound footing towards continued development.
“Government would improve on testing, just as it continues to monitor the development and not hesitate to do selective lockdown should there be any flagrant disobedience to the set COVID-19 protocols.”
COVID-19: Ogun orders full reopening of churches, mosque, hotels
Pleased with the drop of COVID-19 infections in Ogun State, @dabiodunMFR, has announced that all hotels, viewing centres, marquees, event centres, suites, guest houses, motels, and establishments providing…. pic.twitter.com/sMiUe3DUt5
— Ogun State Government – OGSG (@OGSG_Official) October 28, 2020
What you should know
Governor Abiodun had closed religious centres, businesses and schools in March, as part of moves to flatten the curve of the coronavirus.
He later announced the reopening of only worship centres and schools in August.
Abiodun pegged the number of worshippers for each service at 200, and insisted that services must not exceed one and a half hours.
CBN reveals framework for the N75 billion Youth Investment Fund
The Nigerian Youth Investment Fund will be funded through the NIRSAL MFB window of the CBN.
The Central Bank of Nigeria (CBN) has revealed the implementation framework for the Nigerian Youth Investment Fund.
This was disclosed in a publication by the Development Finance Department under the auspices of the Central Bank of Nigeria.
The CBN stated that the Nigerian Youth Investment Fund (N-YIF) would be funded through NIRSAL MFB window, with an initial take-off seed capital of N12.5 billion.
The N-YIF aims to financially empower Nigerian youths to generate at least 500,000 jobs between 2020 and 2023.
Objectives of the scheme:
Improve access to finance for youths and youth-owned enterprises for national development.
Generate much-needed employment opportunities to curb youth restiveness.
Boost the managerial capacity of the youths, and develop their potentials to become the future large corporate organizations.
Explore Data on the Nairametrics Research Website
The fund targets young people between the ages of 18 and 35 years.
Beneficiaries of NMFB, TCF and AgSMEIS loans, and other government loan schemes that remain unpaid are also not eligible to participate.
Individuals (unregistered businesses) shall be determined based on activity/nature of projects subject to the maximum of N250,000.
Registered businesses (Business name, Limited Liability, Cooperative, Commodity Association) shall be determined by activity/nature of projects subject to the maximum of N3.0 million (including working capital).
The tenor of the intervention is for a Maximum of 5 years, depending on the nature of the business and the assets acquired, of which interest rate of not more than 5% under the intervention shall be charged annually.
The Federal Ministry of Youth and Sports Development (FMYSD) will collaborate with relevant stakeholders to identify potential training for training/mentoring.
The youths that are duly screened (and undergo the mandatory training where applicable) shall be advised to login to the portal provided by the NMFB to apply for the facility.