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Sovereign Wealth Fund: Of governors’grouse and Jonathan’s lecture
Regional Editor (News), Olawale Rasheed, examines recent exchanges and bickering between the Presidency and state governors over the management of the economy and other issues.
INTER-GOVERNMENTAL relations was again put to the test last week, as the Nigeria Governors’ Forum (NGF) kicked against some federal policies while President Goodluck Jonathan took time to lecture the state chief executives on politics and the economy. This was another bickering over sharing of national resources.
The governors had, at their meeting, come up with a shocking declaration which took many observers by surprise: “The 36 state governors under the aegis, Nigeria Governors’ Forum (NGF) yesterday asked the Federal Government to suspend the operation of the Sovereign Wealth Fund Act…until all issues concerning the fund are resolved.
“The thing is that it is our money and we need it. We are faced with so many challenges beyond the scope of our financial capacity and we cannot have a situation where the Federal Government will compel us to save money by not giving us our full dues from the Federation Account…For example, we need money to develop our regions, how do we get that? We are confronted daily with security and conflict resolution matters, yet we don’t have enough resources to tackle them.”
The state chief executives had originally agreed to back the Fund as a way of resolving the issue surrounding the constitutionality or otherwise of the Excess Crude Account. The reasoning was that instead of operating an illegal account and instead of spending all earnings without saving for the rainy days, the Fund should be created and operated as international investment fund to serve as savings for future generations and as a returns-yielding venture. This is the practice adopted by most oil producing nations, especially as they realise that oil is an exhaustible natural resource.
This was accepted by all stakeholders, with the governors securing a concession that saw all of them as members of the Fund‘s Board of Governors. Many had expected that the making of the Act would resolve the messy handling of the Excess Crude Account, while at the same time transforming the nation into a responsible manager of its national resources. The sudden change of mind among the governors was therefore intriguing and a major setback in the transformation agenda.
Many reasons could have accounted for this volte face. Professor Ashby Monk of the Oxford University Sovereign Wealth Fund Blog identified two main reasons. The first is the obvious challenge of fiscal pressure facing the states due to minimum wage and other fiscal needs. This is a reality as many of the states, after paying salaries and pension will have nothing left for capital development.
But were the governors not envisaging this scenario as the Minimum Wage Act was passed into law before the elections? As aptly put by Ashby. “Shouldn’t that point have been raised before the bill was passed? Why are the governors preparing their legal teams for a fight now instead of when the bill was being developed?’’
The second reason was the apparent independence of the Fund. Again let us quote Professor Ashby: “If you recall, the governors were originally convinced of the NSIA’s merits only after they were all given seats on the fund’s “Governing Council. As the Nigeria Sovereign Investment Agency (NSIA) head, Aganga, recently noted: it was agreed that all the 36 states will be represented on the SWF Council that will preside over the fund instead of the six representatives drawn from the six geopolitical zones that was initially recommended to seat on the council.
“In other words, the governors were told that they would have authority over the Fund. And, as such, perhaps the governors thought they’d have a similar level of flexibility and influence over the NSIA as they did with the ECA? It’s hard to know. But if that was the case, then they definitely didn’t read the fine print.
“If you go back to the Act, you’ll see that the Governing Council actually doesn’t have much authority at all. The NSIA board, which is the body that actually oversees the NSIA, is quite independent from the council. In fact, the Act was quite deliberate in stripping the council of any investment or managerial or operational powers:
“The Board shall be independent in the exercise of its responsibilities under this Act…Without prejudice to the provision of subsection (I) of this section and except as expressly provided in this Act, the Council may not, by resolution or otherwise, require the (Board of) directors to take, or refrain from taking, any specified action…Members of the Board have fiduciary obligations to the Authority, and shall not act in any circumstance where their personal interests conflict with the interests of the Authority.
“So the governors were given seats on a board that didn’t actually have much influence over the NSIA. And so, you may be asking, what is it that the council does? Not much: except as otherwise provided under this Act, the Council shall provide advice and counsel generally to the Board having regard to the objects of the Authority under this Act…The council shall, in the discharge of its duties, observe the independence of the Board and officers of the authority. In other words, the council isn’t going to be telling the board or the authority what to do; it’s only there to give advice.’’
But one is left wondering what happened to the governors prior to the enactment of the Act. Are the governors only now realising that their “carrot” (a seat on the Council) isn’t really much of a carrot at all? Are they only now aware that the NSIA will really and truly operate in an arm’s length capacity? Are they only now starting to appreciate the good governance practices that will prevent them from being able to impose their personal or political will on the operations of the NSIA? Or were they tricked into endorsing the act in the hope of any possible miracle in the Fund`s operations?
Let it be said that our governors are no push overs, as many of them are tested public officials. Maybe they were clouded with campaign activities and the threat of transitions from rivals. It could also be an arm-twisting measure design to force the Federal Government for a bailout. Interestingly, the Federal Government itself appears to need a bail out, as budget deficit is on the increase in federal appropriations.
In reality, some governors can no longer stay in their states. Paralysing strikes are ongoing in many states. Many governors are becoming very unpopular, despite their recent popular mandate. If job approval rating were to be conducted on some governors, many will fall far below 40 per cent. The state leaders may have thus genuinely believed that their money, which was being invested and saved in the Fund, should be disbursed to them to handle their states’ challenges. It is like, why saving when you are dying of hunger today?
There is however a lacuna. The governors chose to voice their grudge through the media. Is it that there is no institutionalised mechanism of consultation between the states and the Federal Government? Or could it be that the mechanism is weak and non-functioning? Worst still, is it that the governors of the ruling party have no formal political mechanism of consultation in such matters?