Nigeria SWF growth begins as $550 million transferred to it

Finally, Nigeria's Sovereign Wealth Fund (SWF), gets to become a real SWF with regular transfer of oil funds above the budgeted benchmark oil price as the minister of finance Ngozi-Okonjo Iweala, announced yesterday that it had transferred $550 million to it.

The SWF now has a total of $1.55 billion in assets, after it started operations with $1 billion.

The $550 million provided to the SWF is to help guarantee power trading and spur investments to build the country’s electricity market, Okonjo-Iweala said.

Out of the fund, $350 million will be used as “liquidity facility” for the state-owned bulk electricity trader, which guarantees power sales by producers to distribution companies,according to Okonjo-Iweala . 

The remaining $200 million “will be for the infrastructure fund for gas-to-power investments.”

This is great news in so many ways. It shows that even with general elections in about a year and temptation for politicians to spend, there is still some push for reform.

I expect Nigerian stocks to rally today on this news, and the naira (domestic currency), to firm against the dollar.

Nigeria relies on crude exports for about 95 percent of its foreign-currency earnings and about 80 percent of government revenue.

However despite decades of oil production, the country has never previously had a SWF.

The Nigeria SWF is split into three funds.

The SWF will safeguard oil revenues for future generations, with a future generations fund, provide a buffer against external shocks with a stabilisation fund and spur infrastructure development in Nigeria with its Infrastructure fund

The Nigeria SWF is the third-largest in sub-saharan Africa, after the $6.9 bn Botswana and $5 bn Angola fund.

However at only 0.56 percent of Nigerian GDP ($273 billion at ye 2013), the SWF has room to grow before it can confidently perform all of its intended functions. 

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