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Nigeria to launch wealth fund

31 July 2012, 10:09

 London - Nigeria will announce in August the management team for its sovereign wealth fund (SWF), which it expects to launch by the end of this year, the finance minister told Reuters on Monday.

The government of Africa's biggest crude oil producer may also issue a second Eurobond of at least $600 million next year which could be open to members of its diaspora, Ngozi Okonjo-Iweala said on the sidelines of a conference in London.

The members of the SWF board have been chosen and will be announced in August once due diligence has been carried out.

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

The fund will be launched with an initial $1 billion after the federal government gained approval in June from Nigeria's state governors, who initially blocked the savings fund, saying it was unconstitutional.

"We're at a stage now where it's accepted by the governors," she said. "The issue is how much goes into the fund not whether the fund should exist."

The long-awaited fund was supposed to replace the Excess Crude Account (ECA), in which Nigeria saves oil revenues over a benchmark price, currently $72 a barrel.

Governors get a portion of any money withdrawn from the ECA but the SWF won't give those guarantees, which means they are likely to want most of Nigeria's savings to be kept in the ECA.

The aim of the SWF is to save money for future generations, to finance infrastructure and to defend the economy against commodity price shocks.

The ECA can be too easily dipped into by government, economists say. The account contained more than $20 billion in 2007 but despite years of record high oil prices it now holds around $6.9 billion.

Okonjo-Iweala is under pressure from fuel importers who say Nigeria owes them billions of dollars in unpaid fuel import subsidies. The state oil company NNPC told Reuters last week it was owed $7 billion in subsidy, more than the entire ECA.

Okonjo-Iweala declined to comment on NNPC's claims.


Nigeria issued a debut $500 million Eurobond in January last year, which was 2.5 times oversubscribed.

Okonjo-Iweala said Nigeria planned to raise at least $600 million next year through a second Eurobond, which may have "a diaspora component".

"We will have a larger bond issue but we may decide that a portion of that should be directed to the diaspora," she said.

"We have to watch what is happening with the global markets," said Okonjo-Iweala, who held a non-deal roadshow with investors in February. "We want to make sure that we float this at a time when it will be successful."

Okonjo-Iweala said she also wants to reduce domestic borrowing due to high interest rates in Nigeria and fears of crowding out the private sector.

The central bank held its benchmark rate at 12 percent earlier this month and urged the government to curb borrowing and invest in infrastructure and jobs because signs for the domestic economy were "ominous".

Okonjo-Iweala said the government would launch a sinking fund to retire maturing bonds and its goal was to bring domestic borrowing down to 500 billion naira a year in the medium term, from 744 billion naira in 2012. However, she added that the country's overall borrowing was in good shape.

"We probably have one of the lowest debt-to-GDP ratios in the world today, at about 19 percent of GDP," she said.

"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."

Economists agree that Nigeria's borrowing ratio is healthy but are concerned that during years of record high oil prices, Africa's second biggest economy isn't saving enough.

Central Bank Governor Lamido Sanusi said last week that Nigeria no longer had the savings to cushion the economy if there was a drop in oil prices.

- Reuters


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