The Political Economy of Nigeria’s Sovereign Wealth Fund

Nigeria’s first attempt to manage its sovereign wealth happened during the Obasanjo administration through the establishment of the Excess Crude Account (ECA) in 2004. Although the ECA was generally regarded to be a noble idea at inception, it was criticized for having a faulty political and constitutional foundation, and for being dictatorial, uncoordinated and unconstitutional. Aside from the question of its legality, the ECA generated controversy over allegations of corruption and mismanagement. There were allegations that accruals were being shared arbitrarily from the ECA across the three tiers of government, during the monthly meeting of the Federation Accounts and Allocation Committee (FAAC). These issues with the ECA led to the establishment of the Nigerian sovereign wealth fund. While the ECA was never repealed and continues to operate, the sovereign wealth fund has taken over its mandate.

The Nigerian sovereign wealth fund was established under the Nigerian Sovereign Investment Authority Act of 2011. The Act also established the Nigerian Sovereign Investment Authority and empowers it to manage the sovereign wealth fund through three different funds. These are: the Future Generations Fund, the Stabilization Fund, and the Infrastructure Fund. The objectives of structuring the sovereign wealth fund through three different funds are principally to protect the economy from the ‘boom and bust’ effect of oil prices in the international oil market; to address the huge infrastructural deficit in the country; and to create a fund for future generations of Nigerians. While the sovereign wealth fund faces the same legal and political challenges as the ECA, regarding its economic results, the fund has been more successful. The benefits of the fund on the Nigerian economy are evident and there is reason to believe these benefits will continue.