Sovereign Wealth Funds (SWFs)

• Economic management requires strategy based on the structure of each economy and governmental goals.
• Boom and bust cycles affect countries, necessitating contingency plans to handle both internal and external factors impacting macroeconomic goals.
• Strategic economic management includes Sovereign Wealth Funds (SWFs) to insulate from boom and bust cycles.
• SWFs are conceptualized to make provisions for "rainy days" during times of economic prosperity.
• Countries establish SWFs to invest revenue onshore and offshore to counter adverse effects of economic cycles.
• Appropriate legal and operational frameworks are needed to achieve SWF objectives.
• These frameworks include legislative enactments, guidelines to implement laws, and guidelines for addressing gaps in underlying laws.

Sovereign Wealth Funds (SWFs)

• SWFs are investment funds set up by governments for macroeconomic purposes based on the IMF's agenda.
• A SWF is a state-owned investment fund comprising money generated by the government, often from surplus reserves.
• SWFs benefit a country's economy and its citizens.
• SWFs are usually invested in diverse sources within and outside geographical boundaries.

Macroeconomics

• Macroeconomics deals with the study of the aggregate economy.
• It addresses issues like interest rates, inflation, exchange rates, GDP, and unemployment.

Microeconomics

• Microeconomics deals with the study of economic behaviors and decisions of individuals, households, and firms.

Imperatives of SWFs

• Setting aside export earnings for investments in foreign assets, especially for countries reliant on non-renewable commodity exports.
• Insulating the economy from boom and bust cycles caused by commodity price volatility.
• Facilitating investment portfolio diversification and reducing the opportunity cost of reserve holdings.

Objectives of SWFs

• Protection of budget from economic swings.
• Future generation benefits.
• Provision of finance for socio-economic development.
• Meeting government contingent pension liabilities.

Types and Related Objectives of SWFs

• Stabilization Funds aim to insulate the budget and economy from commodity price swings.
• Savings Funds or Intergenerational Savings Funds aim to diversify assets through conversion of non-renewable assets.
• Reserve Investment Corporations aim to enhance returns on assets counted as reserves.
• Development Finance Funds are set up to finance socio-economic development projects.
• Contingent Pension Reserve Funds are used to provide additional funds for government contingent pension liabilities.

Global Perspectives of SWFs

• Over 144 countries, including Nigeria, have created SWFs.
• These countries are guided by the principles issued by The International Forum of Sovereign Wealth Funds (IFSWF).
• IFSWF strengthens the community through dialogue, research, and self-assessment.
• The Forum has 50 members, including NSIA, and engages in standard setting, knowledge sharing, and representation.
• The value of SWF assets has grown steadily.
• In 2000, global SWF assets were US$1.2 trillion.
• By March 2025, the total value of SWFs was US$13.4 trillion.

SWF Asset Growth (2000-2025) in Trillions of Dollars

• 2000: 1.2, 2001: 1.2, 2002: 1.3, 2003: 1.4, 2004: 1.6, 2005: 2.0, 2006: 2.5, 2007: 3.2, 2008: 3.6, 2009: 3.8, 2010: 4.4
• 2011: 4.8, 2012: 5.4, 2013: 6.0, 2014: 6.5, 2015: 6.4, 2016: 6.7, 2017: 7.5, 2018: 7.5, 2019: 8.5, 2020: 9.4, 2021: 11
• 2022: 10.7, 2023: 11.8, 2024: 13.3, 2025: 13.4
• As of February 2025, there are over 90 SWFs managing US$13.4 trillion in investments.
• The leading countries with SWFs include Norway, China, UAE, Kuwait, and Saudi Arabia.
• There has been a growing awareness and appreciation of the need for SWFs among nations.

Top Ten SWFs in the World

• Norway Government Pension Fund Global (Norway): $1,738,806,263,000
• China Investment Corporation (China): $1,332,071,000,000
• SAFE Investment Company (China): $1,090,000,000,000
• Abu Dhabi Investment Authority (UAE): $1,057,545,000,000
• Kuwait Investment Authority (Kuwait): $1,029,000,000,000
• Public Investment Fund (Saudi Arabia): $925,000,000,000
• GIC Private Limited (Singapore): $800,800,000,000
• Badan Pengelola Investasi Daya Anagata Nusantara (Indonesia): $600,000,000,000
• Qatar Investment Authority (Qatar): $526,050,000,000
• Hong Kong Monetary Authority Investment Portfolio (Hong Kong): $514,347,820,969

Adaptation of SWF in Nigeria

• SWFs have been considered for Nigeria due to the structure of its economy.
• The Nigerian economy is characterized by dependence on a monolithic source of major revenue.
• The Nigerian economy is characterized by infrastructural deficit.
• The Nigerian economy is characterized by persistent budget deficit.
• The Nigerian economy is characterized by low GDP growth.
• The Nigerian economy is characterized by a huge and rising debt stock.
• The Nigerian economy is characterized by a high unemployment rate.
• The Nigerian economy is characterized by persistent pension fund crises.
• The Nigerian economy is characterized by boom and bust cycles.
• In the early 1970s, Nigeria experienced an oil boom followed by a bust, leading to austerity measures.
• Establishment of a Sovereign Investment Fund was imperative due to lessons learned from these periods.
• Positive outcomes and experiences of countries with existing funds reinforced the decision.
• The Nigeria Sovereign Investment Authority Act was promulgated in 2011.
• Ownership structure: FGN 46.4%, State Govts 36.9%, Local Govts 18.2%, FCT 0.5%.
• NSIA funding comes primarily from surplus crude sale proceeds to enhance fiscal discipline.
• An allocation of US$1 billion seed money was made to the Fund in 2013.
• Additional tranches have been made through Nigeria Infrastructure Fund, Future Generation Fund, and Stabilisation Fund.

Objectives of the Nigeria Sovereign Fund

• Manage the Nigeria Sovereign Fund.
• Build a saving base for Nigerians through a well-constructed investment portfolio, funded by excess crude oil revenue.
• Enhance infrastructure development across motorways, agriculture, healthcare, power, renewable energy, and the financial sector.
• Provide support for economic stabilization during periods of stress, recession, or depression.