SWF Unconstitutional and a Victim of Acute Distrust

SWF Unconstitutional and a Victim of Acute Distrust

What's in a name? That which we call a rose by any other name would smell as sweet.

~~William Shakespeare

Nigeria’s Sovereign Wealth Fund (SWF) is in deep trouble. It is being challenged as unconstitutional, which indeed it is, absent an amendment to the 1999 Nigerian Constitution. The present controversy, once again points to how precept trump principles in policymaking, often creating dissonance and conflict where none should exist. Governance at all levels is not about doing what is convenient or proper, as it is about taking principled positions in the national interest.

Ironically, just like the Minimum Wage Act, which this space addressed recently, the evolution of the SWF and it passage, points to lack of due diligence and due process, political acquiescence, absence of checks and balances, political doublespeak and placing convenience over principles in matters of national interest and in moments of controversy.

On this issue, some may rightly argue that what matters the most, is the good intent, the ultimate objective and what the Fund is and is meant to accomplish, and not what the Fund is called.  As convincing as this argument sounds, it is equally vacuous and self-serving if we are really to be taken seriously as a nation. When the Sovereign Wealth Fund which exists in several countries was conceived, the first act of due diligence in its formulation should have been to ensure that it passed the litmus test of constitutionality and did not infringe of state’s rights. The federal authorities clearly flunked that test.

When the Bill was in draft form, and well before it was eventually passed as the National Sovereign Investment Authority Bill and consequently signed into law by President Goodluck Jonathan on 27 May 2011, the Attorney-General of the Federation and his 36 counterparts in the states could have pointed out the possible unconstitutionality of the Fund, no matter how minor and even if it was just in name alone. These legal luminaries failed in their respective statutory duties.  They thus set the stage for the present confrontation between the President and the State Governors; the sorry junction to which we have arrived.

Let the truth be told. There is nothing inherently wrong in having a national saving scheme for a rainy day and for posterity. Putting such a scheme in place could be at the initiative of the Executive Branch or the Legislative Branch, or a combined effort. It could also be collaboration between the Federal and the State governments.  Whatever medium is selected as the choice, the first rule of the game is to ensure the constitutionality of the act, and second, to ensure broad ownership or consensus. The architects of the SWF failed on both counts.

As it is in life, love, and war, it is a risky fare to make assumptions in law and governance. When the National Sovereign Investment Authority Bill was drafted and passed into law, the assumption was made by many that it would be no problem to merely rename the “Excess Crude Account,” which had been set up by the military through executive fiat and decree, as the “Sovereign Wealth Fund.”  Not so simple; it was a wrong assumption.  True, over the years, indeed since 1988, when President Ibrahim Babangida authorized the dedication of crude oil of 65,000 barrels per day for the finance of special priority projects including Ajaokuta Iron & Steel, Itakpe Iron Mining, and Shiroro Hydro-electric projects and during the first Gulf War in the early 1990s, the federal government had used the Excess Crude Account, (stabilization account) to domicile the windfalls from oil sales and to hold the differential sums earned due to positive disparities in the budgeted benchmark for crude oil sales and the actual market price.  That was all well and good.

What was not well and not good was that all that saving was squandered without proper accounting until this day. And no one has taken responsibility or held accountable. That is a fact! What was not well and not good; was that no one bothered to check what the law and the Constitution would permit. Thus it was not acceptable, and this should have been researched and documented, that whereas the National Sovereign Investment Authority Bill gave effect to the Sovereign Wealth Fund and made it prima facie the successor regime to the Excess Crude Account, the law did not address how to resolve the conflict and its usurpation of the constitutional provisions, which stipulated in Section 162 of the 1999 Constitution, that  “The Federation shall maintain a special account to be called “Federation Account” into which shall be paid all revenues collected by the Government of the Federation....”  Our national track record with dedicated accounts does not represent best practices.  Hence, someone should have questioned the duplication.  Moreover, the constitution spoke of a “special account” not, “accounts”.

Enter conflict, discord, and the present impasse.  Truly, as William Shakespeare proclaimed, “What's in a name? That which we call a rose by any other name would smell as sweet.”  Oh yes, that may be true of flowers, but not so in constitutional and monetary matters and certainly not in handling other peoples’ money.

By the present plan, the SWF is to be funded with an initial seed capital of $1billion and subsequently with unstipulated monthly deductions, from excess oil revenues from the Federation Account.  Anyone, who bothers to recall what happened to the N12 billion naira windfalls from the Gulf War era, that was the subject of the Pius Okigbo Committee report, would have known that the SWF was being built on a shaky foundation. As the Okigbo Panel had surmised, “The problem with these accounts is that even when the revenues were shown globally as in the case of the dedication account, the expenditures were not included in the Federal Budget.”  Who says that the fate of the SWF would be any different?

Where there is immense distrust, lack of transparency, and lack of accountability, where policies are infinitely ad hoc and based on what is convenient, it is always a hard sell to convince stakeholders, in this case state governments and local governments to cede their constitutionally arrogated fiscal rights to the federal government.  This is the crux of the present problem.   Other reasons abound, why the governors might be skeptical about the SWF.  Some elements of the Okigbo Panel report are instructive and therefore worth recalling here:

We believe that a complete autonomy for any central bank is purely fictional, as there is no way it can be totally divorced from government…. In spite of the stipulation in CBN Decree No. 24 that the Bank must not advance more than 12.5% of recurrent budget revenue of the FGN, it has always exceeded 50% during the last seven years. Government should also curtail its excessive expenditures in order to conserve the foreign exchange earnings….the discrepancy between Government fiscal and monetary policies has reached an unacceptable level due mainly to lack of an institutional structure which will allow for effective consultation, cooperation and coordination between the Central Bank and the Federal Ministry of Finance.

The truth be told, the governors cannot whimsically be against national savings. It is therefore wrong as some have suggested that they are being disrespectful or disloyal to the President; after all, the President was until recently one of them.  However, it is within their rights to challenge as they have done, not just the merit of the SWF, but its very essence and constitutionality. That is part of the democratic checks and balances, separation of powers and our three-tiered presidential system of government.  Essentially, under the 1999 Constitution, what is shared is shared, but what is reserved exclusively for the federal and state governments is unfettered and sacrosanct and should be allowed to stand.

Commonsensically, most governors see no reason for the federal government to act as their savings and loans counselor or arbitrage firm, and hold on to funds that they need for the development of infrastructure in their states.  The states are better positioned to determine how much money to spend on critical needs, overhead and how much to save, if any.  As one governor noted, “where the federal government is not providing the much-needed electricity, waters, healthcare, education and infrastructure in the states, it should not hold on to states funds under any pretext.”  I concur!

If indeed, the state governors were consulted and gave their consent before President Jonathan sent the bill to the National Assembly, only to make a volte face now, it must be for good reasons and for the greater good rather than an act of bad fate.  From all indications, their stand on this issue is irrevocable, more so, now that they are faced with demands to fulfill their obligations in paying the new national minimum wage.  They sure do need the funds. Still the governors know that they are not blameless and that the general population is very skeptical about their reservations, because in the final analysis, they too all give the same excuse of lack of money for not executing projects within their remit. So, who says they will use the funds saved from the SWF for any worthy cause?

It is reassuring that the governors and the Finance Minister Ngozi Okonjo-Iweala met recently to brainstorm on the way out of the present deadlock. Minister Okonjo-Iweala is merely engaged in damage control. I suspect that such talks are unlikely to yield any constructive dividend.  As Gov. Peter Obi indicated, the issue is basically one of deep distrust.  The states do not trust the federal government to save and judiciously account for the SWF from here to perpetuity.   Apropos dedicated accounts, of which the SWF is undoubtedly one, the Okigbo Panel recommended, “…that the dedication and special accounts be discontinued and any existing balances be taken into the external reserves of the Central Bank.”  Can someone please point out these lines in the Okigbo Panel’s report to President Goodluck Jonathan?

Incidentally, on this singular issue, the governors have found a common voice that transcends party lines. It proves that money talks. Also, the governors understand, as did the Richard Pryor character, Daddy Rich in the 1976 hit movie, Car Wash, that “The best place for money, is right here in my pocket.”  Moreover, at a time when some within and outside Nigeria are wickedly foretelling the disintegration of Nigeria, why should any well-thinking governor cede away his states’ rightful resources to a dubious future?

The present discord over the SWF is refreshingly good for our democracy, despite being seemingly distractive. For a nation that has scuppered its vast national resources, and given that oil is a non-replenishable able commodity, the desirability or imperative of the SWF is not lost to Nigerians and the governors.  But the federal government can only be judged on its track record. Perhaps, this issue will force a compromise, and better bi-partisan cooperation at all levels. That the governors have been able to rally to a consensus in jointly opposing the federal government on this issue, regardless of their party affiliation, is refreshingly salutary.  For its part, the federal government must not only allay the prevailing fears, but address the SWF’s unconstitutionality question. Absent these measures, off to the Supreme Court goes the case. All said though, for now, the SWF is unconstitutional and a victim of acute distrust. The governors have my vote on this one.