The Sovereign Wealth Fund: The Ends Do Not Justify The Means (2) —Asiwaju Bola Ahmed Tinubu

Truly, a better wage structure is needed. In a perfect setting, the increased wage would prompt an automatic recalculation of the revenue allocation between federal and state governments by lowering the former and raising the latter. If the federal government is serious about the wage, it must go back to the drawing board and do this in a more equitable and transparent fashion.

THE STRUCTURE OF THE SWF IS FLAWED

Aside from its constitutional flaws, the operational anatomy of the SWF reveals a scandal in waiting. The law gives too much power and latitude to the SWF “Authority” to invest funds and to borrow. There is too little transparency and oversight. The SWF will become a den of corrupt practice.

The Act permits the SWF Authority to establish an unlimited number of branches nationally or internationally. The Authority can also establish an unlimited number of wholly or partially owned subsidiaries in any part of the world. However, there is no restriction on whether these subsidiaries can open their own subsidiaries and under what conditions, structures and laws. Wholly owned subsidiaries can bind the Authority to secured debt instruments and obligations. Authority can also fully guarantee the debts of the wholly owned subsidiaries. Partially owned subsidiaries can incur unsecured debt obligations. All of this creates a giant loophole with regard to oversight and transparency. At its sole discretion, the Authority can establish a complex maze of worldwide offices and subsidiary holding companies. Money, profits and debts would be impossible to trace. A normal audit of the Authority will not adequately examine the operations of the subsidiaries. In the hands of a few ingenious people, the SWF could operate as a gigantic investment shell game. Put it more bluntly, state funds could fall into a black hole and we would never know it.

The new Authority will be authorised to invest oversees in financial instruments and investment vehicles not allowed in Nigeria such as complex derivatives. Thus sovereign money is going to do abroad what is improper at home. Worse, the Act does not provide any criteria for the quality of Fund investments. For example, it would have been a prudent requirement to mandate that the Fund invest a certain percentage in AAA or AA rated securities or to place a cap on investment in foreign real estate or junk quality bonds. Because there are no such investment parameters, all the funds can be invested in high risk endeavours at home and abroad.

The SWF will actually consist of three trust funds:

1. Future Generations Fund

2. Infrastructural Fund and

3. Stabilisation Fund

Regarding the Infrastructure Fund, the Authority is instructed to devise its own infrastructure plan but coordinate to the extent possible with appropriate federal and state agencies involved in infrastructural development. This sounds good in theory. In practice, it will result in nothing but confusion and incoherent overlap. In practice, the Authority will do its thing and any harmony with what other government agencies are doing will be by pure chance.

Regarding the Stabilisation Fund, the Finance Minister has the unilateral right to withdraw from the Fund if the actual quarterly federal revenues fall below a certain point. This should not be a unilateral decision. Also the acute inexactness in how the federal government calculates actual revenue means this provision can be manipulated particularly when there is nothing that requires the Minister to detail how the funds will be used.

As with most laws we pass, this law seems more interested in setting up an unrestrained bureaucracy than it seems interested in the substance of the work that bureaucracy is to perform. Consequently, the Authority can hire unlimited asset managers, advisors and consultants and no maximum cap is placed how much can spend on these outsiders in a given year. This will encourage abuse. The SWF will become a place to hire political cronies and distribute political favours. As such, it will bankrupt the Fund that was allegedly intended to enrich Nigeria.

Additionally, we have no idea how much the Board of Directors shall be paid and what their performance incentives will be. This is an important point because how a person gets paid will determine how they manage the Funds assets.

Last, the Act does not ensure sufficient transparency for the amount of money that is involved. The Act does state that the Authority’s annual report shall be made public but this is of no great use. As history as shown, banks have distributed beautiful annual reports one day only to be found insolvent the next. The Act also requires an audit but it does not require that audit to be made public. They can keep the superficial report. It would be better to publicise the audit so that we can really see what is happening. That is much better than only getting the information the Board wants us to see.

CONCLUSION

In the final analysis, the SWF must be scrapped or substantially modified. The law unduly abrogates the revenue allocation mechanism established by the constitution. This improper law must be changed or it must be challenged in the court in order to set a historic precedent for our constitutional democracy. We must jettison the mindset that whatever is done by those in authority is beyond question and automatically lawful. The SWF is popular in many quarters and thus many people want the law to remain although they know it is unconstitutional. We tread a danger path when we value the transitory popularity of a measure more than its inherent legality. Once you cast aside the requirement of legality, those in power become free to exploit that same measure in unpopular ways that were not originally contemplated.

The occupants of high office must be confined to the constitution if Nigeria is ever to be governed by the rule of law and not the whim of man. More to the point, the SWF is not sound fiscal policy or economics. State governments are imperfect and need reform. Still, they are more responsive to the people’s needs than the federal government. There is no evidence that giving funds to the federal government would put the funds to better use. I have no faith the federal government is less profligate than the states. To the contrary, I am confident the state governments of Edo, Ekiti, Lagos, Ogun, Osun and Oyo would do more good with their share of the funds than would the federal government’s SWF.

I am not opposed to an SWF. Properly established, it can be useful. If the federal government wants to establish a SWF funded from a portion of its own revenue allocation, it may do so. This would be a proper exercise of federal authority. Those states wanting to participate can join as well. Even there, the current structure of the SWF needs to be amended so that its operations are more transparent and as well made to be more prudent.

However, those states that want to use their funds for their own projects should not be denied their money. If people do not like how their governors use their funds, they can vote them out. That is what democracy is about and what elections are for. The SWF represents an unwarranted federal surcharge on the states. This is not constitutionalism, federalism, democracy, fiscal responsibility or economic development. It is an encroachment that establishes a risky precedent. Should we allow it to stand, it will be the opening move in a series of federal actions that bleed the states to feed Abuja. Our states will be in danger of becoming the dangling appendages of a swelling federal government. Let’s stop and go no further down this road. Let’s reaffirm federalism and our best chance for economic development by challenging the SWF for being the unconstitutional transgression it is. •Concluded

•Tinubu, ACN leader, writes from Lagos.