On 27 May 2011, the President signed the Nigeria Sovereign Investment Authority (Establishment etc.) bill into law, creating the NSIA and authorising the establishment of the three ring-fenced funds which are jointly owned by the three tiers of Government.
As part of its mandate, the NSIA Act requires that the Authority observes and incorporates international best practices into its policies and operations. Amongst such international practices are the “Santiago Principles”, a set of 24 guidelines incorporating best practices agreed and adopted by a group of the world’s leading Sovereign Wealth Funds (SWF).
These principles were proposed in 2008 through a joint effort between the International Monetary Fund and the International Working Group of Sovereign Wealth Funds, which has since been replaced by the International Forum of Sovereign Wealth Funds (IFSWF). Amongst other things, the Santiago Principles aim to:
- Maintain a stable global financial system and encourage the flow of capital and investment across capital markets.
- Comply with disclosure practices advocated by international organisations, such as the Financial Action Taskforce under the Organisation for Economic Cooperation and Development.
- Take careful consideration of economic and financial risks in investment decisions, and
Incorporate transparent governance structures that abide by appropriate operational controls, risk management and accountability, amongst others.
NSIA takes pride in observing these high standards and is committed that the principles, together with other policy standards we have adopted, will continue to remain core values of the Authority.
The Three Fund Mandates
NSIA commenced operations in October 2012 with an initial allocation of US$1 billion in seed capital. As provided for by the NSIA Act, NSIA’s investments are made through three distinct funds:
The Future Generations Fund
The purpose of the Future Generations Fund (FGF) is to preserve and grow the value of assets transferred into it – by investing in a diversified portfolio of appropriate growth investments – in order to provide future generations of Nigerians with a solid savings base for such a time as the country’s hydrocarbon reserves are depleted.
The Nigeria Infrastructure Fund
The Nigeria Infrastructure Fund (NIF) aims to invest in domestic infrastructure projects that meet targeted financial returns and contribute to the development of essential infrastructure in order to stimulate the growth and diversification of the Nigerian economy, attract foreign investment and create jobs for Nigerians. Potential areas for investments include healthcare, transportation, energy and power, water resources and agriculture, amongst others. The Authority may invest up to a maximum of 10% of the funds in NIF in social infrastructure projects, which promote economic development in underserved sectors or regions in the country.
The Stabilisation Fund
The Stabilisation Fund (SF) is intended to act as a buffer against short-term macro-economic instability. The SF’s assets are therefore to be invested conservatively, striking a balance between generating a modest positive return and preserving capital in nominal terms. Given the unpredictable and short-term nature of the Fund’s potential liabilities, immediate liquidity is also required. Withdrawals from the SF will be made at the direction of the Minister of Finance, upon satisfaction of the criteria set out in the NSIA Act.
The Board of Directors resolved to apportion 40% of the assets transferred to NSIA equally to each of the Future Generations Fund and the Nigeria Infrastructure Fund. The minimum amount, 20% was allocated to the Stabilization Fund.
The rationale behind this decision was the assertion that through this initial period of NSIA’s existence, equal importance be placed on ensuring that the institution is targeting inter-generational equity in the form of savings for future generations of Nigerian, whilst addressing the infrastructure deficit currently holding back the country’s growth.