Nigeria Plans to Replace Excess Crude Oil Account with a Sovereign Wealth Fund

Nigeria’s government is aiming economic growth of 10 percent as it authors an oil-financed infrastructure fund, promotes foreign investment in the power industry and takes out fuel subsidies that have bankrupted the national coffer, according to Finance Minister Olusegun Aganga.

In October, the top oil producer in Africa also intends to sell its first global bond $500 million. Stated by Aganga, 55, said in an interview in London.

In Aug. 26, President Goodluck Jonathan said that the government plans to put an end to the state power monopoly and intensify electricity generation through private investment to alleviate shortages in the continent’s most heavily populated nation. Aganga said, an independent wealth fund backed by oil revenue is also anticipated to start by October to assist payment for infrastructure. The fund will initially start off with about $1 billion, he said.

“Today we have a government that’s committed to encouraging investment,” Aganga said. “We have a government ready to deliver infrastructure.”

Nigeria has a daily power interruption. Their current supply is approximately 3,000 megawatts, but the nation's demand for electricity is almost double than that. Nigeria has a population of 140 million. It is Africa’s second-largest economy after South Africa.

Aganga said, bolstering growth to a minimum of 10 percent in coming years is “achievable” as investment in infrastructure rises. In the first half of the year the economy inflated 7.4 percent, in comparison with 5.9 percent in the same period last year, pushed by growth in the non-oil industries, he said.

Angaga said that the Excess Crude Oil Account will be replaced by the sovereign wealth fund. The government often use the Excess Crude Oil Account to fund expenditure, he added. Part of the new fund will be allotted to savings that is off limits to the government unless oil prices crash. Most of the fund will bankroll infrastructure projects, according to him.

By the end of the year, from between $500 million and $800 million currently, the Excess Crude Oil Account should reach about $1 billion, Angaga said. It will be moved to the sovereign wealth fund and act “as a catalyst for both local and international investors,” he said.

A stability fund, which is the third part of the sovereign wealth fund, is similar to the current Excess Crude account, Angaga said. The difference is, it would be more difficult for the government to access, he continues.

Aganga revealed in an interview with Maryam Nemazee on Bloomberg TV’s “The Pulse” in London that Nigeria is also targeting to attract investment in its power industry. He said Nigeria has already received interest from investors in China, Brazil, and Germany.

“We’ve had calls from so many investors,” he said. Even before recent changes to the industry were announced, “I received at least two to three calls from major investors.”

Yvonne Mhango, an economist at Standard Bank Group Ltd., Africa’s biggest lender, said, investors are quite leery that Nigeria will be able to entice a tsunami of investment in power plants and infrastructure as it gets ready for general elections, due as early as January, and the global economic comeback loses momentum.

In a phone interview from Johannesburg, Mhango said, “These are very ambitious policies that are necessary to unlock the bottlenecks in the economy.” She added, “Whether the political environment will allow them to do so is a different thing.”

It was Jonathan, the one who appointed Aganga to his position in April, who has driven the government’s plans to overhaul the power sector. The current Nigerian president hasn’t revealed yet whether he will run to keep his post.

“Jonathan has put a greater emphasis on the power sector,” said Mhango. “The durability of that depends on whether he stays in power. It’s still uncertain times.”

In the past six months the benchmark Nigerian Stock Exchange All Share Index has gained 5.6 percent, while the naira plummeted 0.6 percent against the dollar in the same period.

Aganga said, the sale of Nigeria’s first Eurobond will act as a criterion, so that companies can price their bonds appropriately. The government has already chosen advisers for the sale and is in the development of assigning book runners, he said.

According to Angaga, foreign investor interest in the planned Eurobond has been resolute, with some investors requesting Nigeria to bolster the size to $1 billion..

There are also plans to scratch out fuel subsidies, possibly within six months according to Aganga. Central bank Governor Lamido Sanusi said, the subsidies cost the government 1 trillion naira ($6.6 billion) in 2009.

According to the country’s Petroleum Ministry, more than 80 percent of Nigeria's domestic fuel are imported due to a lack of refining capability.

“In three to four years’ time, Nigeria will be a different country,” Aganga said. “We have a great story. The numbers tell you that.”

Nigeria will post a budget shortage of about 1.9 trillion naira ($12.6 billion) this year, or 6 percent of gross domestic product, Aganga said.

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