BY OGENE ESHOMOMOH
The rainy day is not far-fetched after all. With the global Corona Virus pandemic and the global economic downturn oozing from the pandemic and falling oil prices, states without savings are in for a hard time. Ogene Eshomomoh of the Jury Justice Rectitude Advocacy Initiative says it is never too late to start a sovereign wealth fund. State governments that have eye on development and welfare of the citizens will have to start setting money aside for the future.
It is important to establish a State Sovereign (Wealth) Future Investment Fund Authority (S-FIFA) by Law. (to be a perennial fund financed by irrevocable standing order payment -ISOP). It is to be funded by statutory deduction of 8.5% of the State’s annual consolidated revenue, and 10% deduction from the students’ save for future independence YETF annual savings cum deposits once it has accrued a gross deposit of N2.5billion, and reinvestment of interest accruing to the Funds, annually; and anonymous donations from well-meaning individuals cum residents and companies operating in the State.
PHASE ONE: ESTABLISHMENT OF STATE SOVEREIGN (WEALTH) FUTURE INVESTMENT FUND AUTHORITY
There is a chasm between this proposed State’s Wealth and Future Investment Funds Authority (S-FIFA) and the Federal government’s Sovereign Wealth Investment Authority Fund (SWIA) or Excess Crude Account (ECA); as the SWIA and ECA neither has provisions for regular or annual statutory funding (via ISOP) nor utilization for target savings that requires legislative approval or appropriation before liquidation and spending.
Indeed, the operation of the SWIA and ECA does not impede any State from operating this special purpose vehicle development fund, including Bayelsa State which can amend its extant Sovereign wealth investment funds law set-up like the Federal government’s SWIA, to make it comprehensive and tailored for specific purposes, as proposed by the draft S-FIFA law.
1. This fund is to reduce the impact of fluctuating oil prices on States’ infrastructural development and socio-economic activities/growth.
2. To save funds through statutory deductions (ISOP) from State’s consolidated revenue, invest in the national, regional and global economy to generate interest that would be liquidated for specific purposes. After all, accumulated wealth is useless without basic infrastructure and could become a liability to generations unborn if we leave them devalued wealth with no nation to invest in.
3. To accrue fund over a period of years for systematic investment in critical infrastructure and other social amenities.
4. To accrue funds that can be used to support or/and reduce annual budget deficit, stabilize the budget and economy without resorting loan.
5. To provide funds, financial stability purposefully for future generation, at least 20 years into the future rather than accumulated debt.
6. Encourage and promote financial transparency and fiscal discipline, and ensure that issues of infrastructure development is de-politicized and de-centralized.
7. To provide sufficient cash backing for infrastructure development projects without resorting to loan or bonds to finance them.
8. To ensure the financial sustainability of each State, and promote hand-over-fist of the economy with little dependence on Federal allocation account.
9. To drive diversity of economy at sub-national level, so each State can harness and optimize their socio-economic and agro-allied competitive advantage.
10. To ensure sustainability of infrastructure project funding and continuity of development projects beyond any government or administration, effectively ensuring that infrastructure development is not politically motivated.
No doubt, Nigeria is endowed with sufficient mineral and human resources. Although many have began to mull it a curse due to the inability of the nation to convert the resources into national wealth and shared prosperity; we have rather been gifted with mass poverty, while the squandering of our commonwealth from mineral resources and brain drain has become the elites unapologetic agenda.
Well, the revenue accruing from our oil resources may be dwindling fast (while we are yet unable to harness the potentials of our solid Minerals sector), yet this is the congruous time to save in order to generate interest to invest in critical social infrastructures; to save in order to provide funds for future generations instead of debt, like most responsible parents would leave inheritances for their children; to save, so that medium term we can stabilize our budget if and when our mineral resources dry off or the prices crash beyond redemption. Indeed, where we invest these funds is important, especially in areas that would improve our human capital development capacity, so that we are not be like parents who leave inheritances for their poorly raised, avarice, education-less and illiterate children who end up fighting themselves over the inheritances till they mis-manage, sell off all the assets and squander all the wealth left to them only weeks after the demise of the parents.
What is an enormous balance in a SWIA worth if it does not add value now or in the future? A generation is about 20-25 years, why not we break our long term savings to make enormous funds available for each generation to equally develop at the pace of their generation, with proper checks and balances through the proposed laws and legislation in accessing the funds like responsible parents with deep foresight do with will.
Summary of the fund
The fund shall have three arms; and receive priority funding as a primary statutorily funded account with deduction of 8.5% from the State’s consolidated revenue (via ISOP). The fund shall have three arms.
The first arm is the Future Assured Investment Fund (FAIF). It would receive 40% of gross revenue accruing to the S-FIFA and invest same for a minimum interest of 10.5% per annum. The fund shall only be accessed, appropriated and liquidated to not more than 65% of its total balance every 20 years cycle, but under strict guidelines after legislative appropriation as stipulated in the law.
The second arm is the Public Infrastructure Fund (PIF). This arm shall also receive 40% of the gross revenue accruing to the fund and invest same for a minimum interest of 7.5% per annum. The fund shall only be accessed and liquidated to 90% of its balance after every 7 years savings cycle, and appropriated for critical infrastructure in health, education, roads, rails, agriculture and other purposes as stipulated by the law, over a period of six year expenditure cycle period. There shall be proposed budget passed by each individual State assembly approving the statutory withdrawal cum liquidation after each saving phase, and the projects to be embarked upon for the first three years of the six years spending/expenditure phase. Appropriation proposal shall only be for half the liquidated funds accrued in the seven years saving phase, in each of the spending phase cycle. No contractor shall earn a profit after tax that exceeds 12.5% of the total cost of the project being executed, and execution of contract shall only be by companies who pay tax to the state. Every expenditure phase of two cycles shall commence at the end of seven year savings phase, and savings phase shall run concurrently with expenditure phase, after the inaugural savings phase is over.
The third arm of the fund is the budget stabilization fund. It has two major purposes which are hinged on foresight. First is to save budget surplus when it begins to become surplus and secondly, to find budget deficit. This arm would receive 20% of the gross revenue accruing to the fund and invest in state, national and regional markets to accrue a minimum interest of 5.5% per annum. The fund shall be accessed to the tune of 50% of its previous balance after the last withdrawal, if once in 3 years, and 60% of its current balance once in four years or twice in eight years, only after supplementary budget is presented or budget deficit is pre-empted when it is appropriated by the State House of Assembly.
It should be noted that there are strict penalties for breach of the law by civil and public servants, S-FIFA officials, contractors and all stakeholders’ of the law; as contractors are designated by their status of white-book, yellow-book and black-book/ blacklisting. Also, any staff or board member of the S-FIFA, or government officials that receives bribe or kickback or any cash/kind gift exceeding N7,500 and N25,000 respectively with regards to S-FIFA project shall be prosecuted for bribery and corruption.
The goals of this fund (especially the PIF) is to save between N750 billion (lowest generating state) and N3trillion (high generating state) twenty one years; and generated up to 65% of this as interest to accrue from its investments.
By and large each state is expected to have added between 45MW and 70MW to the power grid; constructed over 3500km of dual carriage roads of international standards with drainages; added at least 300km of intra state mono rails into a functional and integrated and fully networked transportation system in your state, every six years.
All projects appropriated for in the budget to be funded by the liquidated funds shall not exceed the amount available for expenditure to be liquidated and shall be directly disbursed by CBN to its contractors. Any project to be embarked upon by any arm of this fund must be cash backed with 100% of the fund for the project available at the inception of any such projects; even if it were a collaborative project requiring counterpart funding, the S-FIFA must have its part 100% cash backed and domiciled with the CBN, and so must the partner whose part of his fund must be verified by the S-FIFA to be 100% cash backed and available to be disbursed by its bank or by CBN upon depositing in the S-FIFA’s projects expenditure account, to be disbursed directly to contractors.
Furthermore, construction of 774 state primary schools with capacity for an average of 450 students each, with 360 state secondary schools with 720 students each, and 72 polytechnic with capacity to accommodate 2500 students per academic session, 36 state universities with capacity to admit an average of 4,500 students per academic session. Each S-FIFA would build at least three secondary healthcare facilities (general hospitals) in each of the senatorial district; minimum of 25,000 tons of silo’s for every major agriculture produce (complete with semi-automated processing plants in fourteen years) in each state. Aside these critical infrastructures to be provided by the Fund, it should also address research in Agriculture and energy and defense.
From the first year to the fourteenth year (end of second saving cycle) an average of N600 billion per state is projected to be accrued to the S-FIFA as savings and interest; and cumulatively, between N6.86 Trillion and N7 Trillion would have been invested in critical infrastructure across all state on a parallel basis if each state witnessing a socio-economic boost of over 1,200% in 20 years. At least 30% of this accruing to the Public infrastructure Fund (PIF), which is about N190 Billion would have been concentrated and invested wholly in the highlighted projects per state or about 7 Trillion, without any loan or money leakage to vested interests or corruption. This money would be generated organically and remain productive within the States to regenerate more wealth and to increase our shared prosperity. This is one model of effective savings without generating any waste, yet optimizing it for us to become the global wealth capital and food capital.
At least thirty five percent (35%) of all projects to be executed using any arm of the funds shall be projects nominated by residents. Contractors shall be subject to appraisals by the residents in the respective local government areas where the projects are being undertaken as well as the fund administrators, and any contractor who is found negligent shall be either blacklisted, yellow booked or whitelisted.
There shall also be an anti-corruption clause applicable to both contractors and management/board of the Fund Managers which shall be based on the following:
25D. The monitoring of funds and projects shall be:
25D,i. By a tripartite standing Committee consisting of anti corruption agencies, civil society organizations and representatives of the BOT
25D,ii. By the committee which shall conduct on the spot assessment of project sites unannounced,
25D,iii. By the Committee, administering surveys and random interviews of site workers
25D,iv. Open to the owners and residents in the community/ Local government areas where the projects are ongoing, upon receiving an inspection authorization letter from the Local government office.
26. The LASSFIFA shall have white, yellow and black books, for contractor performance records, using the set performance index:
26A. Contractors companies/ names shall enter the white book if:
26A,i. The contractor has no professional complaint on any of his project site for four years or five projects in a row,
26A,ii. The contractor and his company do not offer any form of kickback or bribe to any government, monitoring committee or LASSFIFA official, or gift worth over N7,500 for four years in a row,
26A,iii. The company meets the project completion deadline for four years or five projects in a row,
26A,iv. The company presents a detailed project report every quarter for ongoing projects, for four years or five projects in a row,
26A,v. If the company has not been yellow booked in the last four years or five projects,
26A,vi. White booked companies shall be Category A companies; and shall be priority companies for LASSFIFA projects to handle PIF projects, and replace all companies removed from a project site or black listed companies handling ongoing projects.
26A,vii. Only white booked companies may be awarded more than five projects simultaneously during a project development phase, but shall not be awarded more than six in any phase; and more than ten in any six year spending cycle
26B. Contractors companies/ names shall enter the yellow book if:
26B,i. The quality of their work is below project specification and industry standard, and they refuse to correct within forty five days
26B,ii. They pay site workers below the project valued wage, and after warning them, refuse to comply and pay the difference within forty five days
26B,iii. A company fails to meet up deadline on two sites consecutively, even a two months grace period,
26B,iv. A company uses inferior or substandard materials on any project site
26B,v. A company makes a net profit of over 21.5% on any project site
26B,vi. A company refuses to submit a project progress report for two quarters consecutively
26B,vii. A company refuses to mobilize to site in thirty days, after receiving mobilization fees of 45% of the contract sum
26B,viii. An official query letter has been issued on that company thrice in a row
26B,ix. If a company is not currently paying company tax in Lagos State
26B,x. A yellow booked company shall not be awarded more than two projects in a row, for a period of one spending cycle of six years, after being yellow booked; shall be removed from site if it fails to make adjustment and/or corrections within a maximum of forty five days; fined 10% (which shall be deducted from subsequent payments by LASSFIFA) of the current contract sum if it is yellow-booked twice in three years; shall remain in the LASSFIFA yellow book for a period of three years if not booked within a three years period;
26C. A company shall be blacklisted if:
26C,i. It has been consecutively yellow booked three times,
26C,ii. It offers kickback or bribe to any government or LASSFIFA agent or monitoring committee member, or gift above N7,500,
26C,iii. Any current member of its board or staffs is a current member of the LASSFIFA BOT, GC, BOD or staff;
26C,iv. It is indicted and convicted for any corruption case
26C,v. Falsifies any of its official records and documents, or is discovered that one year before it was issued its first LASSFIFA project, it was not paying taxes in Lagos State 26C,v. A blacklisted company shall be removed from site and every project it is handling for LASSFIFA; shall be compelled to refund all monies paid for work not completed; shall be prosecuted where necessary; shall not be awarded any LASSFIFA project for seven years