Mr. President, The CBN Governor Needs Help!

By Muiz Banire, SAN

A few days ago, I read about the disbursement of another sum of N2.07 trillion to various levels of government as statutory allocations accruable as revenue for February, 2024. The entitled entities include the federal, state, and local governments. As has become characteristic of the present administration, particularly after the removal of the petroleum subsidy, distributable allocations are now consistently in the trillions, in contrast to those under the Buhari administration.

A quick glimpse reveals the following: While the Buhari administration shared allocations by way of illustration for January 2023, 1.4 trillion, February, 1.03 trillion; March, 2023 860.04 billion; April 2023, 872.55 billion, May 2023 976.34 billion, the current Tinubu administration has distributed so far the following amounts: June 2023, 1.134 trillion, July 2023, 1.89 trillion, August 2023, 1.80 trillion, September 2023, 1.48 trillion, October 2023, 1.59 trillion, November 2023, 1.35 trillion, December 2023, 1.62 trillion, January 2024 1.67 trillion, and February 2.07 trillion. From these statistics, it is clear that distributable revenue among the levels of government has been on the rise since the inception of this administration, primarily due to the oil subsidy removal, and consistently, in trillions.

To a large extent, this could be seen as a positive development but with negative implications for the economy and the people. Despite the release of huge sums into the economy, Nigerians are still unable to feel the impact of these funds in their daily lives. In fact, if there is any noticeable impact of the disbursements on Nigerians, it is negative, in the sense of engendering inflation in the country. The further multiplier effect of the continuous release of such large accruable revenue into the economy is the mounting pressure on the local currency, the naira. One might have thought that such releases would positively impact the economy through improved welfare for Nigerians via investments in infrastructure and job creation. Alas, this is far from being the case. Rather than positively impacting the economy, these releases are actually destroying and impairing economic growth. Most state actors into whose possession the large funds come, instead of utilizing the funds appropriately, are misapplying them in a manner detrimental to the health of the economy. It is bad enough to misappropriate the funds, but worse still, these funds are often not made to work for the economy but are instead kept idle or exported. Truth be told, most of the funds, upon conversion to foreign currency, are often stored outside the financial system, where they could be working for the country. As the government continues releasing huge naira sums, pressure mounts on the few available foreign currencies, for which the corrupt leaders have developed a huge appetite. Applying the law of supply and demand, it’s no rocket science that the exchange rate for foreign currencies will continue to skyrocket. Similarly, the huge naira amounts are chasing the few available commodities, thus compelling spikes and hikes in the prices of goods. These are the concomitant effects of releasing such huge sums into the economy. As is known today, the Central Bank of Nigeria, under the able leadership of the incorruptible Yemi Cardoso, is doing much to defend the naira. Mr. Cardoso came at a challenging time when the CBN, rather than being the stabilizer of the economy, had become a source of economic instability.

The apex bank was at its lowest ebb at the time of his takeover, with various forms of malfeasance being commonplace. It is saddening that beyond the failure of the funds’ recipients to invest in infrastructure beneficial to the people, the President is still appealing to the Governors to pay the minimum wage. What an irony! My expectation is that, as Mr. Cardoso struggles to rejuvenate and rescue the naira, all stakeholders must be seen to be supportive of his efforts, particularly those in charge of our fiscal policies. In this regard, I once again call on Mr. President, among other stakeholders, to intervene within their respective spheres to aid in the urgent recovery of the naira against foreign currency oppression.

The primary area of intervention lies in how the country manages the accruals from fuel subsidy removal. As remarked earlier, the continuous release of accruals to other tiers of government has not had any significant impact. My initial thoughts, which remain valid and which I have discussed elsewhere, are that we should create a special purpose vehicle for the direct, effective utilization of the funds. This is not an innovation in our country; during the Abacha regime, when we experienced a similar windfall, the Petroleum Trust Fund was established by the then military government to apply the funds towards desirable infrastructure, and indeed, to a large extent, this was achieved and felt. In those days, we used to see PTF roads, hospitals, educational infrastructure, health facilities, etc. Similarly, the intervention of former President Jonathan in applying the savings arising from a slight increment in the sale of petroleum products led to the creation of SURE-P, which carried out a lot of interventions, notably in the area of transportation. In these instances, the funds were not aimlessly thrown into the system. Beyond compelling the provision of infrastructure, the masses could directly feel the impact of these interventions.

The policy was even useful in staving off inflation in the country and forestalling pressure on the local currency. An alternative proposal, if the previous suggestion is unappealing to the government, is the direct appropriation of the funds to specific areas of development. For example, it is well known in the country that our educational and health facilities face challenges. I would have expected the President and, by extension, the economic council to specifically intervene in any of these areas, especially given that the Central Bank has complained about the pressure on our reserves from demands for foreign currency to meet these objectives abroad. It is said that medical tourism, just as the pursuit of foreign education, has become a draining pipe on our foreign exchange earnings. Why, then, is it impossible for the government, by way of deliberate policy, to specifically intervene in these areas to the extent that we reduce exposure? The savings, in my view, would have, at the barest minimum, generated double benefits for us in this regard: enjoy the provision of infrastructure while saving expenses on these foreign necessities. If I must reiterate, the continuous disbursement of the accruals from the savings to the levels of government is detrimental to national interests and needs to be stopped; otherwise, we continue to make difficult what would have been much easier for the Central Bank to normalize. Should these ideas not appeal to the Tinubu administration, I believe there is still in existence in Nigeria an Authority in charge of the Sovereign Wealth Fund. Despite the comatose state of its website, reflective of the state of affairs in the organization, the Nigeria Sovereign Investment Authority still exists. It is structured as an independent body with the mandate to ‘build a savings base for the Nigerian people; enhance the development of Nigerian infrastructure; provide stabilization support in times of economic stress; and carry out such other matters as may be related to the above objectives’. Among the functions assigned to the Authority is the building of a diversified portfolio to meet the objectives of the Fund, which include the growth of investments for future generations of Nigerians. It is instructive to note that the Authority is to ‘receive, manage, and invest initial and future contributions on behalf of Nigerians in each of the Future Generations Fund, the Nigeria Infrastructure Fund, and the Stabilization Fund pursuant to the allocations of contributions from the federal government, state government, Federal Capital Territory, local governments, and Area councils…’ With this kind of vessel on the ground, the wasteful approach of releasing the funds to levels of government that remain unimpactful would have been diverted into stabilizing the country’s economy for the present and future generations of Nigerians.

The wisdom behind setting up the fund is best appreciated against its capacity to assist in managing the country’s foreign exchange inflows. Sovereign wealth funds (SWFs) are often established by countries whose economies are heavily reliant on commodities like oil, whose prices are volatile. The fund assists in mitigating the risks associated with price fluctuations while helping to spread the country’s wealth more equitably across generations. It is reported that over two-thirds of the global SWFs were established by oil-producing countries, indicating the critical role these funds play in managing excess funds from commodity prices like oil and diversifying their economies beyond just natural resources. The diversified portfolio of investments help in stabilizing the financial system, usually involving the export of funds to other parts of the world, particularly advanced economies. In essence, beyond being a potent tool in financial management, SWFs help manage the country’s wealth effectively and shield the economy from external shocks. The significance of the sovereign wealth fund is underscored by the volume of global investments, which stands at approximately $12.7 trillion within the first 100 SWFs, the majority of them being oil-producing nations like Saudi Arabia, Kuwait, Qatar, etc. Nigeria, therefore, cannot afford to be an exception in the face of the daunting challenges she is facing. As remarked above, SWFs protect a country from financial instability during periods of economic turbulence or downturns.

Therefore, I plead with Mr. President to, going forward, start diverting the savings from oil subsidy removal into the fund, not only to protect the present generation but also to save future generations of Nigerians. I suspect that the probable rationale behind not looking at the fund is due to the ineptitude of the operators. For the success of any SWF, it must be well-designed with precise forecasts of funding and withdrawal that are consistent with the stated goals. In addition, a vital prerequisite is accountability and transparency. Constant flow of information on the accumulated revenue and the rationalization of investment portfolios must be made public. Unfortunately, this level of openness has not been observed in the operations of the Nigerian Sovereign Wealth Fund. Monthly reports of activities ought to be a necessity. Therefore, I urge Mr. President to direct further investments into the Fund if the other options canvassed above are unattractive. This action will go a long way in aiding the defense of the Naira by the apex Bank. By engaging more actively and transparently with the Sovereign Wealth Fund, not only can we aim to stabilize our economy in the short term, but we can also lay the groundwork for a more resilient and prosperous future for all Nigerians. It is essential that the administration, together with all stakeholders, reconsider the current approach to the disbursement of government revenues. Instead of continuing with a system that has shown limited benefits to the average Nigerian and poses risks to our economic stability, it is time to prioritize investments that offer tangible, long-term advantages to our country’s infrastructure, healthcare, education, and overall economic health. Through strategic, accountable, and transparent management of our resources, we can achieve a more stable and prosperous future for Nigeria. This will not only defend the Naira in the face of current economic pressures but also safeguard the well-being and prosperity of future generations of Nigerians. In conclusion, the pressing issues facing our economy and currency demand a strategic overhaul of how we allocate and invest our national wealth. The potential of the Sovereign Wealth Fund as a tool for economic stabilization and growth must not be overlooked. It’s imperative for the government to act decisively, with a clear focus on accountability, transparency, and the long-term well-being of the Nigerian people. I implore Mr. President and all relevant stakeholders to take the necessary steps to ensure that the wealth of Nigeria is managed in a way that benefits not just the current population but also sets a solid foundation for future generations.