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The
Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) says the
Sovereign Wealth Fund being proposed by the Federal Government is
illegal, as its foundations are not rooted in the provisions of the
country’s constitution.

The Fund is for the
accumulation of excess revenue from trade and crude oil exports for
investments and development of critical infrastructure that would
benefit both the country’s economy and the citizenry in general.

Olusegun Aganga,
the Minister of Finance, said the decision to establish the Fund is to
enable it serve as a catalyst for the nation’s economy development.

Mr. Aganga said the
apparent lack of discipline among managers of the nation’s finances
over the years has necessitated “a very strong structural vehicle,
properly managed by local and international advisers, to meet the
triple objectives as a stabilisation fund to support annual budget
deficits; savings for future generations, as well as funding for the
development of the nation’s basic infrastructural needs.”

Though
consultations are said to be ongoing on its operational structure,
management as well as other governance issues preparatory to its take
off, Ibrahim Dankwambo, the Accountant General of the Federation (AGF),
said last week that the government has already set aside $1billion
(about N150billion) as seed money for the Fund.

But, a RMAFC
Federal Commissioner, who spoke last Thursday on condition of
anonymity, said “government is treading the path of illegality in
pursuing a justifiable agenda”, pointing out that “no matter the good
intentions of government, the structure establishing the SWF would
render it defective, illegal, null and void, if its existence and
operation are not derived from the provisions of the country’s
constitution.”

He said that though
the revenue mobilisation agency is yet to formally write to the
Presidency on its position on the proposal, it, however, made its
concerns known during a meeting convened recently by the Federal
Ministry of Finance to discuss the issue of government treading the
same path of unconstitutionality when it established the Excess Crude
Account (ECA) and the Excess Revenue Account (ERA).

Erosion of Obasanjo’s legacy

The ECA was
established in 2003 by the Olusegun Obasanjo administration to
accumulate revenues earned from crude oil exports above approved
benchmark price indicated in the annual budgets, while the ERA was
opened recently for all monthly revenue accruals in excess of about
N365 billion pegged as ceiling for distributable allocations for
sharing by the Federation Accounts Allocation Committee (FAAC) to the
Federal and the 36 state governments as well as the Federal Capital
Territory (FCT), Abuja.

The ECA was also in
fulfilment of the conditions by Nigeria’s debtors for the external debt
pardon Mr. Obasanjo got the country. But the Act came into force in
July 2007 with the account reaching $20 billion in January 2007.

Sections 162 of the
1999 Constitution stipulates that all federally collected revenues,
namely oil and non-oil revenues earned from crude oil sales, royalties,
petroleum profit tax (PPT), gas revenue, rentals, penalties from gas
flaring and miscellaneous oil earnings as well as company income tax
(CIT), import duties, excise duties, and Customs penalty charges are to
be lodged in the federation account.

The RMAFC is the
only government agency mandated under Section 162 (2) and (3) to
recommend the distribution of the amount standing to the credit of the
Account among the federal, state and local governments in each state on
such terms, and in such manner as prescribed by the National Assembly.

The implication of
this, according to the commissioner, is that any disbursement,
withdrawal or appropriation of government revenue without strict
compliance with these provisions, as has been the case with
government’s management of the ECA and ERA, is unconstitutional.

“The RMAFC has
consistently criticised the practice by the Presidency and the Federal
Executive Council (FEC) to approve withdrawals from the ECA, which has
been depleted from over $22billion in 2008 to about $460million as at
last month. The FEC is made up of a group of politicians, whose
decisions should not set aside the supremacy of the constitution,
particularly on issues that have to do with the nation’s finances.

“Though the
minister has indicated that the ownership of the SWF would be devoid of
the control of either the federal or state governments, and managed
through a Council, whose members would be made up of representation
from all parts of the country, including women groups, student bodies,
civil society organizations, public and private sectors, its existence
still requires a constitutional backing to make it legal. The only way
that can be done is if the constitution is amended,” he said.

Meanwhile, Razia
Khan, a financial analyst and regional head of research, Africa for
Standard Chartered Bank, London said that “the sheer amount of
liquidity that has been pumped into the system, with spending ramped up
dramatically in this year’s budget, and an increased pace of disbursal
from the excess crude account, eroding much of Nigeria’s saved oil
windfall is a concern.”

“While the evidence
suggests that economic growth remains weak – for now, at least –
limiting the likelihood of significant demand-related price pressure,
the amount of liquidity out there still sits uncomfortably with many.”