Nigeria Berates IMF Report On Management Of Sovereign Wealth Fund

The Nigeria Sovereign Investment Authority (NSIA) has condemned as bizarre the data used by the International Monetary Fund (IMF) in its report on the operation of sovereign wealth funds in resource-rich countries of the world, including 10 African countries.

The Nigeria sovereign fund has been applauded as a good example of a well-governed sovereign wealth fund and the IMF report is a significant departure from the general perception of the NSIA.

In its Fiscal Monitor report released on Wednesday, the IMF listed Nigeria as second to the last in a global ranking of worst countries in the use of sovereign wealth funds.

IMF said the index was compiled using the corporate governance and transparency scores of the sovereign wealth funds and the size of assets as a percentage of 2016 GDP of the countries considered.

More importantly, the Fund said it used data compiled by the Natural Resource Governance Institute and Worldwide Governance Indicators for its assessment.

But in a strongly worded rebuttal to the report, the NSIA condemned IMF for relying on third party data that were not contextualized to draw conclusions on the management of the sovereign wealth fund of Nigeria.

In a statement by the Managing Director of NSIA, Uchechi Orji, sighted by THE WHISTLER, the organization also noted an alleged IMF bias against countries investing part of their sovereign wealth in their domestic economies.

“I have read the report by the IMF, with particular reference to the chart on page 56, and note that there is limited context or narrative to the chart.

“Whilst I acknowledge that the report made no direct references to NSIA, and it stands to reason that the report is targeted squarely at the country’s use of proceeds of its natural resources, the ensuing headlines and sweeping generalizations have necessitated that the NSIA responds and seek clarifications from the Fund. In seeking this clarification, I wish to make the following points.

“This report by the IMF quotes third-party data and not the output of IMF’s research. The report and its conclusions are based on the report by the Natural Resources Governance Institute. We find it rather strange that the IMF will adopt 3rd party data and graphs in its reports, without providing a detailed context whatsoever. Whilst the report does not mention that NSIA, its sweeping generalization and use of third-party data, raises concerns that diminishes its usage. More importantly, graphing governance against Asset size to GDP has limited correlative value. This is basically, for lack of a better word, a flippant piece of work.

“It is obvious in this report that the IMF prefers SWFs of countries that do not invest in their domestic economies and dislikes countries that want to use part of their resources to develop their own domestic infrastructure. So countries such as Nigeria are ranked poorly because they use part of these funds in local domestic investment which conflicts with a long-held view of the IMF against domestic investment by the SWF. The Nigeria Sovereign Investment Authority Act mandates that the NSIA run three ring-fenced funds – Stabilization Fund, Future Generations fund, and Nigeria Infrastructure Fund with asset allocation of 20:30:50 respectively. The first two funds invest globally, and the last fund is focused on Nigeria domestic infrastructure needs,

“Whilst we understand the theory of “Dutch disease” and its effect of domestic investment, we believe that investing in commercially viable domestic infrastructure should be the focus of funds such as the NSIA. There is no real value added in a sovereign wealth fund keeping all its funds in its foreign reserve accounts if it can use portions of said fund to address commercially viable infrastructure projects at home. This philosophy of domestic infrastructure development underpins the operation of the Infrastructure Fund of the NSIA,” he stated.

The NSIA also expressed strong reservation over IMF’s suggestion that countries rated poorly in the use of sovereign funds, including Nigeria lacked strong institutional framework to manage their sovereign wealth and ensure and ensure that proceeds are appropriately spent.

The NSIA stated that the Nigeria sovereign fund faces no such challenge as its operations have been transparent and accountable since inception.

“The governance process of NSIA is well documented in its Establishment Act. NSIA has an independent professional Board that through 5 committees, rigorously oversees the operations of the fund. The NSIA is subject to several audits during the year – quarterly audit review by its external auditors, Price Waterhouse Coopers and Annual audits reports are published, the Auditor General and Accountant General all independently audit the accounts and operations of the fund. The Internal Auditor reports directly to the Board of directors. The NSIA investment processes are published on its website and strictly adhered. In the first 6 years of its operation, Cambridge Associates served as our investment advisors while from 2019, UBS Ag was appointed to take over from Cambridge.

“The NSIA’s governance process have been remarked upon by institutes such as the Sovereign Wealth Fund Institute (SFWI) and the International Forum of Sovereign Wealth(IFSWF). Over the past five year, the SWFI has consistently ranked the NSIA governance process in the top quartile of its transparency ranking and as a member of the IFSWF, NSIA adheres to Santiago principles of transparency and good governance.

“Recently the NSIA and the World Bank Group worked extensively on a transparency initiative for its infrastructure projects. Meanwhile, the Authority has had a senior staff of the IFC on secondment as Portfolio Manager of the Nigeria Infrastructure fund, over the past four years at the NSIA helping it develop its infrastructure fund and ensuring that it complies with all the governance and transparency rules such as US FCPA, UK Anti-bribery Act etc.,” Orji explained.

However, Orji acknowledged that the report was not a “direct attack” on NSIA, but stressed the organization was disappointed “about such sweeping generalizations and use of charts from other parties without making effort at understanding the in-depth operations of NSIA. “

He described the NSIA as well governed institution and the IMF report could create “undifferentiated panic among our international co-investment partners and stakeholders at home…”