Nigeria’s Post-oil Economy Uncertain With Paltry $2.5bn Savings

Judging by savings, Nigeria’s post-oil economy shows elements of uncertainty as the country’s sovereign wealth fund (SWF) currently stands at a paltry $2.5 billion and foreign reserves of $33 billion, even though the country’s debt stock stands at $88 billion as of July 2021.

A quick glance at the Sovereign Wealth Fund institute shows Nigeria ranks 58 in SWF ranking, 4 places lower than fellow African oil producer, Angola, which has $3.2 billion in assets.

Compared to other oil-producing nations, Nigeria performs poorly in savings for the rainy day. A significant contrast to what fellow oil producer, for example, Kuwait reportedly has is $700 billion in her ‘Life-After-Oil” fund. That country’s ‘Life-After-Oil” fund is separate from the $41.7 billion dollars in her foreign reserves as of March 2021.

According to Bloomberg, Kuwait is making moves to invest its way out of dependency on oil money. It is called the Future Generations Fund, a national savings pot designed to help the country prepare for life after oil. The Future Generations Fund cannot be touched without approval from parliament.

This Future Generations Fund, which is managed by the Kuwait Investment Authority, has more than 50% of its investments in the U.S. and a high level of exposure to the equity markets.

Kuwait holds approximately 7% of global oil reserves and has a current production capacity of about 3.15 million barrels per day. In contrast, Nigeria currently produces 1.38 million as of May 2021 with a maximum production capacity of 2.5 million barrels (a level it has not attained in years and with OPEC quotas may never attain).

Other countries with large funds are Norway, Norway’s Sovereign Wealth Fund, China, China’s Investment Corporation, and the United Arab Emirates, Abu Dhabi Investment Authority, which hold $1.3 trillion, $1 trillion and $649 billion respectively in assets, according to the Sovereign Wealth Fund ranking.

The idea behind the Future Generations Fund is to acquire stakes in long-term investments and assets to provide savings for future generations of citizens.

Earlier in the decade, Nigeria was one out of three OPEC member states with no sovereign wealth fund. The then Finance Minister, Ngozi Okonjo-Iweala, who currently serves as the director-general of the World Trade Organization, advocated a sovereign wealth fund which would have three aims: saving money for future generations, providing financing for badly-needed infrastructure, and providing a stabilisation fund to defend the economy against commodity price shocks.

Although the Sovereign Wealth Fund idea faced severe opposition from state governors, it eventually came to fruition. The SWF protects savings better than the ECA (Excess Crude Account) which at that time had been raided and depleted from $20 billion to $1 billion.

Speaking with NATIONAL ECONOMY on the issue, international business and project development consultant, Ant Hill Concepts Limited, and member of NATIONAL ECONOMY’s Board of Economists, Dr. Emeka Okengwu said Nigeria’s sovereign wealth fund, which was instituted less than a decade ago is still young. He said it is also pertinent to take the infrastructure stock into consideration, stressing that those countries with huge future generations funds have overcome the kind of infrastructure deficit Nigeria is enduring. He also said those countries have largely operated national oil companies that afforded them the opportunity to save. On the other hand, Nigeria has over the decades operated the multinational oil companies structure, a situation that the Petroleum Industry Bill (PIB) is tipped to correct.

Also speaking on the issue with NATIONAL ECONOMY, associate professor, Department of Private and Commercial Law, Dr. Tayo concurred with Dr. Okengwu, saying before a country gets to the level where it begins to save huge amounts for future generations it must first take care of its infrastructure deficit. He added that it makes no sense to save money for the future when the means of prospering to save for the future, good infrastructure, is in bad shape.

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