Investing in...Nigeria?

Nigeria, the tenth largest producer of oil worldwide, is beginning to amass its own wealth. While $59 billion in revenues from oil were generated in 2010, the federal government has no funds. How is it possible? Nigerian officials have often used savings “in reserve” for nationwide projects, the withdrawals never needing approval. Combined with public corruption and rampant poverty, it is unsurprising that any investor would consider entrusting their funds to the Nigerian government.

This is all about to change, however. Nigeria is beginning to craft a new sovereign wealth fund- revenue surpluses not used for immediate cash or consumption are invested in a federal account of financial instruments (assets normally held include stocks, bonds, property, and precious metals). Thus, Nigeria has been able to invest for its own future benefit. The wealth fund also provides Nigeria with a hedge against resource risks, as 80% of revenues come from oil. These include volatility of its oil prices and limited supply.

It is not Nigeria’s first sovereign wealth fund. They have, in fact, continued to run its original with little success. The fund, begun in 2004 as a means for nation savings, accumulated up to $20 billion in funds. Now, however, it holds less than $1 billion. It is clear that more regulation will be needed in this case for the sovereign wealth fund to sustain itself in the long run.

The fund has many leaders, however, which enables Nigeria’s future success. The fund will be managed by a former E&Y and Goldman Sachs employee from London, an experienced financier and Nigerian native. Along with JP Morgan, the fund will be structured to prohibit unnecessary withdrawals. Assets will be specified to serve a purpose, such as for investment in country infrastructure or education. If the right measures are put in place to profit on oil revenues, Nigeria may grow to be one of the wealthiest countries in the EMEA region.

-Zeena Advani