Nigeria To Launch Sovereign Wealth Fund, Prepares $600m Eurobond

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VENTURES AFRICA – Nigeria will announce a management team for its proposed sovereign wealth fund (SWF), which would be inaugurated before the end of 2012, the West African nation’s finance minister and head of economic team, Dr Ngozi Okonjo-Iweala said on Monday during an exclusive interview with Reuters on the sidelines of a conference in London.

According to Nigeria’s finance minister, the announcement will be made in August, and members of the SWF management team have already been selected pending completion of due diligence.

“By September/October, we should be getting the team in place and we should be able to launch by the end of the year…We are in the last stage of due diligence,” she said.

It would be recalled that the government of Nigeria, in June, approved $1 billion from the state governors who initially protested the constitutionality of a SWF.

“We’re at a stage now where it’s accepted by the governors. The issue is how much goes into the fund, not whether the fund should exist,” Okonjo-Iweala told Reuters.

The SWF is the long-awaited replacement for the Excess Crude Account (ECA) in which Nigeria saves oil revenues over a benchmark price, currently $72 per barrel. The rationale behind the creation of the SWF is to save funds with which future generations would finance infrastructural development.

In addition, the fund would also be used to insulate the nation’s economy against commodity price shocks.

In related news, the honourable minister also disclosed the readiness of the Nigerian government to raise more than $600 million via a second Eurobond in 2013 which she said could involve investors in the diaspora.

“We will have a larger bond issue but we may decide that a portion of that should be directed to the diaspora, we have to watch what is happening with the global markets. We want to make sure that we float this at a time when it will be successful,” she said.

She also stated her intention to lower domestic borrowing in Africa’s second largest economy, an action necessitated by the high local interest rates coupled with fears of crowding out the private sector due to government’s excessive borrowing.

To prevent this, Nigeria’s apex bank, the Central Bank of Nigeria (CBN) held its benchmark rate at 12 percent earlier in July and urged Nigerian government to curb borrowing and invest in infrastructure and jobs – an aftermath of what it called “ominous signs for the domestic economy”

However, the finance minister said Nigeria’s overall borrowing is in good shape.

“We probably have one of the lowest debt-to-GDP ratios in the world today, at about 19 percent of GDP; external borrowing is 2.4 percent of GDP. I’m sure that’s probably the closest to zero you can find anywhere in the world,” she added.

While economists agree with the honourable minister on Nigeria’s healthy borrowing ratio, they expressed worries over the continent’s biggest oil producing nation not saving enough during years of record high oil prices, a position that was corroborated by the governor of the CBN who stated last week that in the event of a drop in oil prices, Nigeria does not have the savings to cushion the economy.