Sovereign Wealth Fund: If Nigeria were Malaysia

In 2016, the US Justice Department filed a complaint alleging that over $3.5 billion had been misappropriated, between 2009 and 2015, from 1Malaysia Development Berhad (1MDB), a sovereign wealth fund (SWF) created by the government of Malaysia to promote economic development. The figure reported stolen was later revised upwards to $4.5 billion even though the department believed the actual value might have exceeded that amount.

It was looted by the fund officials and their associates in government and laundered through a web of complex financial transactions with banks in Singapore, Switzerland, Luxembourg and the United States actively involved.

The Malaysia fund was not managed by a ‘fly-by-night’ entity but by the famous Goldman Sachs. Its staffers were later indicted for failure in carrying out due diligence, looking the other way while state officials pilfered the common purse or played active roles in the scandal. After years of persecuting those indicted in the stealing that would become the most notorious Malaysian and one of the biggest financial scandals, Goldman Sachs, last year struck a deal with the Malaysian government for a $3.9 billion settlement.

The 1MDB scandal is a lesson to different countries with SWFs, including Nigeria. Nigeria and the Asian country have shared socio-political traits, including the rich history of official craft and high tendency to grease the wheel.

But while Malaysia has continued to improve in its transparency culture in public business, Nigeria sinks further into its legendary corruption mire, which manifests in the Transparency International Corruption Perception Index where it ranks 149th compared with Malaysia’s 57th position.

The Nigerian SWF, which is managed by the Nigeria Sovereign Investment Authority (NSIA), was set up amid intense controversy in 2011 – the same 1MDB was, incidentally, being plundered to buy luxury, including artworks, overseas. Then, some stakeholders expressed concerns about the transparency of its management just as others advocated a more aggressive investment in infrastructure as against saving for the future.

Even though there are still questions about the fund nine years into its operation, the managers have managed to keep their heads above water. For instance, it publishes financial statements, showing its operations, the status of the fund being managed and its key interventions. Its financials from 2013 till 2019 are accessible on its website just as that of 2020, according to its head of Corporate Communications, Titilope Olubiyi, which would be ready in May.

The authority also gives an account of its operations when the need arises. When the Federal Government wanted to take $150 million from the fund last year, NSIA notified the public, saying: “The government of Nigeria announces plans to make its first withdrawal of $150 million from the SWF since its inception. The NSIA Act 2011 under sections 47 and 48 support the withdrawal from the Stabilisation Fund and stipulates the applicable process… The funds drawn will be used to augment the Government’s Federation Accounts and Allocation Committee (FAAC) disbursements by June 2020 for allocation.”

At the weekend, Olubiyi disclosed that the authority currently sits on $1.6 billion capital contributions from the three tiers of government and the Federal Capital Territory (FCT) and $2 billion Presidential Infrastructure Development Fund (PIDF), which make the total funds in its portfolio $3.6 billion. Each of the managed funds, he said, “is accounted for separately with the audited financial statement for each”, stressing that NSIA has not recorded any financial loss.

On transparency and governance, Olubiyi stressed: “As a member of the International Forum of Sovereign Wealth Funds (IFSWF), we subscribe to the Santiago Principle of Governance, which dictates clear accountability and transparency standards. We have not incurred any infraction as a member. Also, we are ranked in the Global Joint second category under the transparency ranking of the US-based Sovereign Wealth Fund Institute (SWFI).

“We are currently the highest-ranked African SWF and have been in the Global Joint second Category since 2014 with a cumulative rating of 9 out of 10 on their scale. Of course, there is always room for improvement but we consistently aim for higher standards of accountability, transparency and governance.”

Scandalous Malaysia’s SWF could only have been looted in the scale reported because of weak oversight and governance. But its seemingly weak control was compensated for by an unbending justice system, which led to the conviction of high-profile public officials, including a former prime minister, Najib Razak, and the recovery of a large chunk of the stolen money.

Interestingly, Nigeria has witnessed the second-level travail of Malaysia as regards SWF (prosecution of corruption cases) severally. Almost in all cases, the country proved that it was incapable of pursuing perceived criminal cases to a logical conclusion. Razak was arrested and prosecuted by the Malaysian Anti-Corruption Commission (the equivalent of the Economic and Financial Crimes Commission or the Independent Corrupt Practices and other related offenses Commission) after which he was sentenced like a common citizen. Can Nigeria replicate that when it becomes necessary to promote a common cause?

The first trial (prevention), where Malaysia failed its citizens remains untested may not have been tested in Nigeria. But many stakeholders said the current system could fail in the face of the slightest financial impropriety attempt and that its governance would require upgrading.

Godwin Owoh, a professor of applied economics, said governance issue is even more important as “the Nigeria SWF is currently one of the riskiest, globally. Its level of transparency and financial disclosure fall far below minimum standards: substantial disclosures on its audited size, investment portfolio and attendant returns, valuation mechanism with custodial and fund managers, leaves any man of goodwill guessing”.

He noted that Malaysia’s theft was uncovered by the kind of robust oversight mechanism that is absent in Nigeria. In Malaysia, just like China and elsewhere, independent private sector-led teams undertake oversight of critical national assets.

The professionals are under oaths and a rigid code of ethics to conduct their affairs in line with the highest level of integrity test and exercise due diligence in their reports to political authorities, who might not even have the capacity to vet them.

Contrary to what obtains in those places, Owoh noted that oversight in Nigeria “is comatose”, weak and compromised.

“These days, the legislative oversight authorities prefer lemon consultants or none at all,” he noted, adding that Nigeria was rarely given to a thorough inquest that could unravel a complex crime of the scale of the 1MDB thieving scandal.

To prevent a doomsday, he said, Nigerians should be allowed to see the details per time of the Nigeria SWF management if the authorities are sure “no devil is sleeping there”.

But the Vice President of Highcap Securities, David Adonri, believed the management framework as contained in the enabling guidelines as approved by the National Assembly was sufficient for transparency. He also believed the National Assembly, the Accountant General of the Federation and the Auditor General of the Federation would hold the fund managers to account and that their reports would be adequately scrutinised.

Indeed, the NSIA operational template follows rich governance and a strong line of reporting with the governing board, which draws membership from the President, state chief executive, the Minister of Finance, Budget and National Planning, the governor of the Central bank of Nigeria (CBN), the Attorney-General of the Federation, the Chief Economic Adviser to the President and a few others. But it remains uncertain if the authorities discharge their governance duties at all and in line with the Act as well as “observe the independence of the board and officers of the authority” as stipulated.

NSIA is emerging as one of the most critical stakeholders in the country’s infrastructure renewal programmes. It will be managing the $15 trillion fund-raising plan of the new-floated Infrastructure Development Company (Infraco) alongside the CBN and the African Finance Corporation (AFC).

Last year, the Senate summoned its officials alongside the Accountant General of the Federation, Ahmed Idris and the Minister of Works and Housing, Babatunde Fashola, over contract variation in legacy projects, including the Second Niger Bridge funded by NSIA-managed PIDF.

The current managers of the authority may have proven their worth as men of conscience and kept faith in the requirements of their offices. But whether these can sufficiently shield Nigeria against the moral risks in SWF administration globally and if the current moral restraint will continue as the Federal Government continues to inundate NSIA with more responsibilities are genuine concerns.