Summary
The Excess Crude Account (ECA) has been replaced with three sovereign wealth funds. These sovereign funds will manage Nigeria’s excess earnings from crude oil. The current administration stated the current Excess Crude Account has no real legal backing since it was formed under a political arrangement from the previous administration.
The NSIA will receive monthly funding of a significant portion of oil and gas revenue above the budgeted revenue and approved by parliament.
The Nigeria Sovereign Investment Authority (NSIA) will manage these three funds.
- Future Generations Fund
- Nigerian Infrastructure Fund
- Stabilization Fund
Background
Funds were previously held in the Excess Crude Account (ECA) to help stabilize the budget. The ECA was created in 2004.The rationale behind the ECA is to act as a stabilization fund, closing budget deficits that are a product of oil price volatility, and to potentially fund domestic infrastructure investments. On May 11, 2011 the Nigerian Senate approved the Nigeria Sovereign Investment Authority Bill, 2010, which seeks to establish a sovereign wealth fund to manage excess profits from the country’s sale of crude oil. It was then passed in the lower house and signed by the President of Nigeria.
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Strategy & Objectives
Stabilization Fund
The objective of the Stabilisation Fund (SF) is to provide stabilization support to the Federation revenue in times of economic stress. The Stabilisation Fund will be mainly managed in-house in a diversified portfolio of liquid, low risk products such as Treasury bills and liquid short term investment grade bonds. The withdrawal triggers from the SF will be at the direction of the Minister of Finance, upon proper demonstration of urgency and satisfaction of the criteria set out in section 48 of the NSIA Act, the NSIA shall have the right to utilize capital and assets in the Stabilization fund to supplement resources available to stabilize the national economy.
Future Generations Fund
The objective of the Future Generation Fund (FGF) is to invest in a diversified portfolio of appropriate growth investments in order to provide future generation of Nigerians a solid savings base for such a time as the hydrocarbon reserves in Nigeria are exhausted. FGF will start off fully outsourced according to an asset allocation model determined by the management of the NSIA. As the NSIA grows, we shall bring the management of this fund in house.
Nigerian Infrastructure Fund
The Nigeria Infrastructure Fund (NIF) aims to invest in infrastructure projects in Nigeria that meet our targeted financial returns and contribute to the development of essential infrastructure in Nigeria. Potential areas for investment include transportation, energy and power, water resources, agriculture, among others, in order to stimulate growth and diversification of the Nigerian economy, attract foreign investment, and create jobs for Nigerians. The NIF will be mostly managed in-house. In the future we plan to outsource to external managers when we identify managers whose objectives and investment philosophy meet the NSIA’s criteria.
Governance
The NISA is governed by a Board. In addition, the NSIA governing council shall provide advice and counsel generally to the Board, having regard to the independence of the Authority.
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