The Government to Float Sovereign Wealth Fund

Lagos, Oct 05, 2009 (This Day/All Africa Global Media via COMTEX) -- SOVW | Quote | Chart | News | PowerRating -- In a bid to create more assets for the Nigeria with her foreign reserves currently put at about $42billion, the country is set to join the league of economies of the world that have used their foreign reserve to set up sovereign wealth funds (SWFs).

Finance minister, Dr. Mansur Murhtar, made this known yesterday in Istanbul , Turkey , while briefing journalists on the outcome of the several meetings the Nigerian delegations to this year's World Bank/ International Monetary Fund (IMF) had with the IMF/World Bank officials and the Africa caucus meeting.

The Minster, who was accompanied by the Central Bank of Nigeria (CBN) governor, Lamido Sanusi, said that Nigeria is considering the setting up of the fund with its reserve in order to create more value for the country.

Sovereign wealth funds are pools of money derived from a country's reserves, which are set aside for investment purposes that will benefit the country's economy and citizens. Funding for a sovereign wealth fund comes from central bank reserves that accumulate as a result of budget and trade surpluses, and also from revenue generated from the exports of natural resources.

The types of acceptable investments included in each sovereign wealth fund vary from country to country; countries with liquidity concerns limit investments to only very liquid public debt instruments.

Murhtar said the CBN and members of the National Assembly are already discussing the idea of setting up SWFs but there is need to have a legal instrument to back it up. He said the fund is created; it will help Nigeria to diversify its revenue base and increase the stream of income flow into the federation account.

The Nigerian team is in Istanbul he said intends to pursue broad based goals that will enable the country achieve macro economic stability that will help Nigeria derived the maximum benefit of its membership of the Bretton Wood multilateral Institution.

Specifically, the minister said that both the management of the IMF and the World Bank have acknowledged the progress so far made in by Nigeria in economic recovery efforts though the future is being viewed with cautious optimism.

Nigeria and other Africa countries he said, are pushing for an increased Africa voice at both the World Bank and IMF.

He said that an additional executive seat is being sought at both institutions for Africa, stressing that at the World Bank level the Africa caucus is pushing for an executive board member, which the Bank board has conceded. At the IMF, the Africa group he said, is also calling an alternate board member. Murhtar said that the Africa caucus is equally urging the Bretton Wood Institutions to liberalise their employment policies in order to accommodate more Africa personnel in these institutions. This he said, has become imperative as it is Africans who actually know the real problems of the continent and be favourably disposed to committing resources to such problems. The Finance Minister said that it is the view of the Africa group that the headship of the Bretton Wood Institutions should not be limited to certain region of the world but should be open to all qualified members of the institutions.

He told journalist that both the Managing Director of the IMF, Mr. Dominique Krauss Khan and the World Bank President, Robert Zoelick, have expressed satisfaction with the reforms that are currently ongoing in the country.

This was corroborated by the Director of the International Monetary Fund's African Department, Ms. Antoinette Monso Sayeh, yesterday at the ongoing World Bank/IMF meetings.

She said the Fund endorsed the ongoing reforms by CBN, which warranted the removal of three more bank chief executive officers last Friday.

Yesterday's endorsement was the second in the last three weeks.

The apex bank had last Friday drew the curtain on its special audit of banks with the release of the result of the last 14 banks examined - culminating in replacement and sack of the managing directors of Bank PHB Plc, Francis Atuche; Equitorial Trust Bank Plc, Ike Oraekwuotu; and Spring Bank Plc, Charles Ojo and their respective executive directors.

Two other banks' (Unity Bank and Wema Bank) management were not affected but were given till June 2010 to recapitalise.

The banking watchdog had also on August 14 sacked the managements of five banks - Afribank, FinBank, Intercontinental Bank, Oceanic Bank and Union Bank - over the huge non-performing loans of their banks and other alleged financial abuses.

It also injected N420 billion into them and appointed new managements, which have since continued to run the institutions as going concerns.

The first endorsement by the Fund was from it's country Chief and Representative in Nigeria , David Nellor on 15th of last month.

Speaking at the sidelines of the World Bank/IMF meetings, Ms. Monso Sayeh, said the Fund was in full support of the latest intervention by the CBN.

"We support the actions of the CBN has taken. We expect the CBN to contain further deterioration in the banking system.

"It was important for the CBN to safeguard the financial system. We have also been supporting the CBN - most especially its banking supervision department and we would continue to support Nigeria in any other way we can," she said.

Noting that many African countries want IMF programmes that will help them gauge the as well as assist in the success of their reform programmes, Monso Sayeh said it was necessary for central banks in Africa to remain vigilant and closely monitor banks.

This she said, was important because of the Nigeria and other banks in Africa had over the years raised their lending portfolio - majority of which had deteriorated due to the global financial meltdown that had directly or indirectly strained the loans that banks gave out.

Consequently, she said it was very important for all central banks in Africa to conduct stress tests to assess the loan portfolio of the respective banks in their domain.

Nellor, in a statement in Lagos, said had said IMF: "Endorses the CBN's intervention in some banks as essential to building a sound financial sector that can promote long term growth and development consistent with the goals being set for the Vision 2020."

He added: "A core principle of an effective banking system is public trust - trust that deposits will be safe, trust that banks allocate financial resources to productive activities, and trust that banks will manage risk. Underlying this trust is a public expectation that sound governance practices are employed in the banking system. These fundamental tenets enable the banking system to promote sound economic growth and development. To that end, the central bank as regulator has the responsibility to ensure that the principles of banking enshrined in legislation and the CBN's mandate are preserved."

Like many countries during the crisis, the CBN, according to the IMF representative, followed a systematic process of examining the banks.

"Special examinations of bank balance sheets by the CBN and NDIC were launched. The purpose of the examinations was to verify asset quality and examine related party transactions. This process is and should continue to be conducted for all banks in the system.

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